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%.
NFLX short interest is $6.79 billion; 18.55 million shares shorted; 4.33% of its float and a 0.30% (general collateral) stock borrow fee. NFLX is the third largest U.S. equity short behind Tesla Inc (TSLA) and Apple Inc (AAPL).
NFLX shares shorted increased by 4.7 million shares, +33.88%, in 2019 with half the increase in short selling occurring in January. January short selling increased by 2.35 million shares which was just slightly above the 2.34 million share increase in short selling in February-July. Short sellers were not rushing in to sell NFLX shares ahead of the earnings report with July shares shorted only increasing by 184 thousand, +1.00%.
Short sellers were down -$1.55 billion, -26.82%, in mark-to-market losses in 2019 prior to todayâ€™s trading. They made back $66 million in mark-to-market gains with NFLXâ€™s stock price down 1% at the close. But with NFLX down almost $40/share in aftermarket trading, shorts are up another $737 million on the almost 11% drop in stock price. In total, short sellers are up $803 million in mark-to-market profits. Todayâ€™s stock moves more than halved their year-to-date losses and NFLX shorts are only down $743 million for the year.
There has been a slight uptick in NFLX short selling in July, todayâ€™s price weakness may lure more short selling if the downward momentum continues. If so, short sellers will join long shareholders selling stock in order to lock in as much of this yearâ€™s 35% gains as possible. We may see a continuation of todayâ€™s aftermarket price drop if both the buy side and sell side trade in unison.
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Managing Director Predictive Analytics, S3 Partners, LLC
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