Netflix Inc (NFLX) reported 2nd quarter earnings of $4.9 billion, up 26% year-on-year, but added fewer than expected domestic and international subscribers driving its price down almost 11% in aftermarket trading following a relatively weak trading day which saw its stock price fall nearly 1%.
Netflix, Inc (NFLX) will be releasing their earnings after the bell today. The big question is whether the largest internet subscription service will be able to follow up last yearâ€™s surge in subscriber growth with another blockbuster year or will competition from Amazon.com Inc (AMZN), stand alone streaming channels and pending Apple Inc (AAPL) and Walt Disney Co (DIS) streaming services take a bite out of their meteoric growth path.
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 sellerâ€™s losses continued to mount this year, down another $1.2 billion in mark-to-market losses in less than a month.
The FAANG stocks are five of the top ten most shorted stocks in the domestic U.S. stock market and because of the sheer size of combined short exposure they represent both risk â€śAlphaâ€ť trades and hedging â€śBetaâ€ť trades.
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The weeklong rally from last weekâ€™s lows has taken a bite out of the $93.7 billion of mark-to-market profits, +11.12%, short sellers have earned since the beginning of October. Over the last week the S&P 500 index increased by 3.31%, the Nasdaq by 4.3% and the Russell 3000 by 3.23%. The S3 Blacklight platform tracks over 8,000 U.S. domestic equity shorts worth over $825 billion, which incurred mark-to-market losses of $23.3 billion, or -2.86%, over the last week.
FAANG stocks (FB, AMZN, AAPL, NFLX & GOOGL) were down 4.7% last week, 3.6% on Friday alone, after Amazon.com and Alphabet announced disappointing quarterly results amid overall weakness in the tech sector. While long shareholders incurred large losses from these widely held stocks, short sellers made $1.62 billion in mark-to-market profits last week.
Tesla Inc (TSLA) and the FAANG stocks continue to be some of the largest shorts in the U.S. market, taking five of the top ten spots in the U.S. league table. While Tesla is a momentum, value and convertible arbitrage short, one of the main drivers for the large short interest in the FAANG stocks is their ability to be a â€śturbochargedâ€ť hedge for the long side of a portfolio.
Matthew Harrigan of Buckingham Research downgraded Netflix Inc. (NFLX) to underperform from neutral with a $333 price target this morning. Harrigan pointed to â€śoptimistic forecastsâ€ť in long term subscriber growth and competition from both domestic and international streaming services in quality content that may affect future margins.
State and local tax authorities will now be able to charge and collect taxes for online transactions executed by their constituents after the Supreme Court of the United States (SCOTUS) reversed a 1992 ruling which excluded online transactions if the seller did not have a physical presence in the state. This ruling now puts online retailers and brick & mortar retailers on a level taxable playing field.Â The news pushed most Internet Retailers into the red, with short sellers up $184 million in mark-to-market profits on their short holdings.
Earnings season is set to get into full gear and these are the top twenty-five S&P 500 stocks with the largest change in $ short interest. While the change in short interest of certain stocks like Facebook (FB), Amazon (AMZN) and Netflix (NFLX) are primarily momentum and value based, other changes in short interest may be an increase of short exposure in anticipation of weaker than expected earnings. The S3 Black App Screener Tool allows you to sort for changes in short interest prior to earnings announcements.