After a three-month buildup from May to July, Netflix Inc (NFLX) short sellers have been slowly trimming their exposure to the online media giant with 1.8 million shares covered, -7.48%, since the beginning of August. NFLX is the 6th largest short in the U.S. market and continues to be the largest short in the Movies and Entertainment Sector. NFLX short interest is $6.2 billion; 21.85 million shares shorted; 5.10% of its float and a 0.30% stock borrow fee (general collateral.)
NFLX is expected to report its September 2019 fiscal quarter earnings after the close. Zachs Investment Research has a consensus analyst EPS forecast of $1.05, a quarterly increase of +18%.
NFLX shorts had been shorting into its first half year rally, increasing shares shorted by +4.6 million shares, +33%, even as NFLXâ€™s stock price rose by 42%, to $381/share on July 10th. In just over those six months shorts were down -$1.82 billion, -31.84%, in mark-to-market net-of-financing losses.
Since July 10th, NFLXâ€™s stock price has fallen by just over -25% and shares shorted have increased by 3.4 million shares, or +18%. Shorts more than made up their early losses and gained $1.87 million, +28.78%, in mark-to-market profits. NFLX shorts are now up $48.45 million, +0.81%, in year-to-date mark-to-market profits.
In October, short sellers have covered some of their NFLX exposure, reducing share shorted byÂ -544 thousand as its stock price rose by +8%. Shorts are down -$367.8 million, -6.1%, in October mark-to-market losses.
This short covering ahead of NFLXâ€™s earnings release may indicate that shorts are locking in some of their recent mark-to-market profits and expecting positive results which implies that subscriber growth will be better than their disappointing 2nd quarter results and the expected streaming competition from new entrants Apple (AAPL) and Disney (DIS) may not be as bad expected.
More importantly, we are not seeing a surge of short selling which would definitely indicate weak 3rd quarter results.
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