August 20, 2019

Hedge Fund Manager Swoops in on Clobbered Netflix Shares

A hedge fund manager has pounced on battered Netflix stock

Hedge fund manager swoops in on clobbered netflix shares, reports John Jannarone at the Wall Street Journal Blogs. Whitney Tilson, hedge fund manager of T2 Partners, has $578,090,000 in AUM, or assets under management. When Netflix shares went on a tear throughout 2009, Tilson shorted the stock, having to take a loss when shares were $200. The stock went to $300 in July before plummeting to $75 this morning.

Tilson is ready for a rematch with Netflix. Only this time, he’ll be in the other corner of the ring. Having been short when the stock went to the moon, the hedge-fund manager is now at risk of catching a falling knife. Mr. Tilson tells us in an e-mail that he bought the stock this morning after it tumbled 35%:

“It’s been frustrating to see our original investment thesis validated, yet not profit from it. It certainly highlights the importance of getting the timing right and maintaining your conviction even when the market moves against you. The core of our short thesis was always Netflix’s high valuation. In light of the stock’s collapse, we now think it’s cheap and today established a small long position. We hope it gets cheaper so we can add to it.”

Tilson was right in his appraisal. Unfortunately for him, it came too late. Timing is a key factor in investing, whether you’re trading or in it for the long-term. It’s also one of the hardest things to get right. Even though Netflix lost 800,000 customers, the company is still growing. The company and analysts have warned there will be many unprofitable quarters to come. It could be a good value buy at the price it’s at. Even though Netflix CEO, Reed Hastings, maintains he’s not selling the company, I wouldn’t take him at his word. He has been (smartly) selling shares the over the entire period the last few years. Google, Amazon, or Apple have high cash reserves. If the price is right, Hastings could make a hasty exit from this mess, and investors would profit. Even though Whitney Tilson may have timed his short bet poorly, perhaps his timing is perfect as the hedge fund manager swoops in on clobbered netflix shares.

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