Netflix Short Sellers Up $800M On Subscriber Miss

Netflix, Inc. NFLX share tanked 11% following a big second-quarter miss on international subscriber growth. While Netflix longs are feeling the pain on Thursday, Netflix short sellers are sitting on huge gains.

What To Know

Netflix is the third most heavily shorted U.S. stock, according to financial analytics firm S3 Partners. There are currently 18.55 billion Netflix shares held short, an outstanding short position worth about $6.8 billion and representing 4.3% of the stock’s total float.

S3 analyst Ihor Dusaniwsky says shorts have been piling into Netflix so far in 2019, increasing the size of the Netflix short position by about a third year-to-date. About half of that increase came in the month of January alone. Short sellers may be betting on a slowdown in Netflix’s growth numbers and/or competition from Walt Disney Co DIS and others. Disney is launching its own Disney+ streaming service later this year.

Prior to the second-quarter earnings report, Netflix shorts were down about $1.55 billion collectively in 2019 as shares rallied more than 35%. However, short sellers gained $803 million on Thursday morning thanks to the subscriber miss.

What's Next

Despite Thursday’s sell-off, Netflix shares remain up 21.5% year to date. Netflix short sellers’ collective year-to-date losses have now been cut in half down to $737 million.

Traders should be watching to see how Netflix stock behaves into Thursday’s close to get some insight as to how short sellers will react.

“Today’s price weakness may lure more short selling if the downward momentum continues,” Dusaniwsky said.

Netflix traded around $324 per share at time of publication, down 10.5%.

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