Short Seller Makes His Case Against Netflix (NFLX)

Netflix, Inc. (NASDAQ: NFLX) is a cult stock stock which often defies gravity.  While shares have soared, many analysts have missed the boat.  It is one of those stocks which rallied into high prices with a triple-digit share price that has even higher share prices.  Short sellers are also making their bets, some profitably and some painfully so.  If you have tracked aggressive and public short-sellers over the last decade or more, Manuel Asensio is likely no stranger.  He manages distressed debt investing but he is also often very vocal in his calls against many high-profile companies.

Manuel Asensio appeared on CNBC today with David Faber and made his case against Netflix.  Asensio questions the numbers for growth and churn rates, questions its expenses against income, and questions the aggressive growth rates that will have to be continued for Netflix to reach many projected growth targets.

Asensio called internet traffic regulation (net neutrality) a huge issue and said the business lacking anything proprietary.  He even noted the equivalent of piracy issued due to multiple users sharing one account.  As far as valuations, there was even the call that Netflix is not just overvalued but overvalued by a magnitude of 4-times or 5-times.  He called it “a walking dead man” and went on to say that this is will be the last good December for Netflix.

There are many points brought by Asensio that many investors will disagree with.  We had recently noted that despite nosebleed valuations, Netflix has a chance of becoming one of the the next seven monopolies if it chooses.  In the end, that is what makes a ballgame.  That also sets the pattern for what is nothing less than a battleground stock where growth and momentum investors clash with short sellers like a war is on.

If you look at the NASDAQ Short Interest report, the shares short in mod-November was listed as almost 10.5 million shares.  While extremely high, that is far less than the peak of 2010 when the shares in the short interest were 12.66 million shares in mid-September.

Manuel Asensio keeps a long archive log of his past research calls, and that log goes well back into the 1990’s.

So far the shorts are winning for Friday.  With about fifty minutes to the closing bell, Netflix shares are down 3.1% at $187.47 and the 52-week trading range is $48.52 to $209.24.

JON C. OGG