Netflix’s Investment Thesis – Time For A Short
Does Netflix HAVE An Investment Thesis?
An investment thesis is used to turn a complex creative idea in to numbers on a page. This is what is used to convince traders to buy stocks. It is also what gets investors to fund private companies. An investment thesis is required in some capacity if you even want to borrow money from a bank. The point is you’re saying, “Hey investors…I’m going to do something magical with your money. When I return, you’ll have even more money. Alright?!”
Blurring the line between “bullish” and “bullshit.”
Over the last 15 years Netflix’s investment thesis has helped them grow from $1.21 on May 24, 2002 to over $400 at its peak. In the last week its stock price has dropped significantly. News outlets are reporting investors and financial authorities expressing various levels of concern. But there are some things nobody is talking about, like how big of a short position will be taken on the company now and what will happen?
Deutsche Bank downgrades Netflix, but says big subscriber miss is not ‘thesis changing’ – Michael Sheetz of CNBC
Deutsche is now considering Netflix a ‘hold’ stock rather than a ‘buy’ stock. That is a signal to stop buying it. If you already bought it, they are saying not to sell it. That leaves another option on the table for investors who are still feeling bull-ish. SHORT IT.
As early as December of last year analysts were labeling Netflix a short. Perhaps this announcement from Deutsche is the red flag waving at oncoming short positions. This year, on February 11, 2018, Adam Stich writes on Seeking Alpha, that, “Fundamentally, Netflix Is A Short.” Adam reports that at the time Netflix’s valuation was near comparable to Disney. But upon further investigation, it is painfully obvious that the two companies are not evenly matched. Disney owns franchises like Star Wars, Marvel, and Mickey Mouse, which according to Mr. Stich, have stood the test of time compared to Netflix Originals. Right. You think you’ll ever watch Season 4 of Orange Is The New Black again? Nope. So they need another strategy.
Another Bloated Tech Giant
Netflix is a part of a new class of overinflated software companies. Uber. Snapchat. There are plenty of others that aren’t as large or high profile. They all suffer from an investment thesis that required exponential growth and assumed infinite potential. That’s a fine mentality to produce in a child, because they need awe and wonder. But it’s terrible for capital gains if you’re chasing unicorns all day. You know…they’re fictional after all!