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Jan 17, 2019

S3 Analytics: NFLX Buying and Selling Into the Earnings Report

Netflix Inc (NFLX) short sellers cut their short exposure in 2018 by 37%, covering 8.1 million shares of shorts as they lost $2.04 billion, -34.90%, in mark-to-market P\L. In the first month of 2019 we are seeing a reversal of the trend, with short sellers adding 1.35 million shares of new shorts, +9.7%, in less than three weeks. While NFLX short interest has climbed 45%, to $5.36 billion, short seller’s losses continued to mount this year, down another $1.2 billion in mark-to-market losses in less than a month.

This week, ahead of earnings, we’ve seen an increase of short selling with 360k shares of additional short sales as of this afternoon, +2.4%, and overall short exposure increasing by $541 million, +11.2%.

NFLX short selling had been declining in the latter half of 4th quarter 2019 but began to pick up after the new year, even though NFLX’s stock price began to rally. Short sellers were actively selling into NFLX’s price strength, looking for a reversal back to the price weakness we saw in December. In January, long shareholder stock buying has far out-weighed short seller selling and the stock is up over 45%. Both longs and shorts are trading their thesis into today’s earnings report and if the stock continues to rally after this afternoon’s announcement, we will likely see a rash of short covering from the short sellers with nearer term trading horizons and overall less conviction. The possibility of short side buy-to-covers trading alongside long momentum and value buys will probably nudge NFLX’s stock price closer to September 2018 highs.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
                 Managing Director Predictive Analytics, S3 Partners, LLC

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