Netflix remained a Wall Street darling for all of last year, but this year has not been pleasant for the video streaming giant as its shares are down 22% year-to-date. In a recent report, Goldman Sachs stated that hedge funds have made big bets against the video streaming company.
Hedge funds expect Netflix to drop
Goldman Sachs’ report tracked 841 hedge funds in the first quarter of 2016 and found that they have large short positions in Netflix. As of April 29, the report pegs the value of short interest at $3.4 billion, representing 9% of the float or the number of shares readily available for trading.
Looking at the history, this type of percentage is not unusual for Netflix, considering the fact that it is one of the most volatile stocks in the S&P 500. The company, which released its latest quarterly report on April 18, shook Wall Street’s confidence in it. It showed strong results for the first three months, but its international subscriber growth guidance for Q2 was well below Wall Street targets.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
In January, Netflix launched its services simultaneously in 130 countries, expanding its presence in every major market except China, and now, the key metric on Wall Street’s mind is international subscriber growth. The streaming firm added 4.51 million subscribers in Q1, exceeding Wall Street expectations of 4.49 million.
Original content is strength
Netflix has a small library of content in certain newly-launched countries, and this has been a source of concern for the company. Last month, UBS estimated that Netflix was seeing mixed results in its new markets. Some markets such as India and South Africa had been doing well, while others such as Russia and Turkey have been lagging.
Netflix’s compelling original content is its most important catalyst for international strength. The company is planning to release 600 hours of original content this year, including 31 original shows. The issues related to last year’s anomalous Australia/New Zealand launch have been blamed for the shortfall in the company’s anticipated international subscriber growth.
In other Netflix news, the company has launched Fast.com, which is an online speed tester that helps Internet speed users see if they are getting as much speed as their ISPs promised. The site takes merely a few seconds to load because of its minimal design, and it does not have any adverts. It just shows the Internet service provider (ISP) download speed instead of measuring lots of different variables that can confuse users.
In premarket trading today, Netflix shares were in the green. Year to date, the stock is down almost 22%, while in the last year, it is up more than 4%.