(Bloomberg) — Hedge fund manager David Einhorn said he’s profited by betting against Netflix Inc., which is facing an onslaught of new competitors and has “yet to demonstrate a profitable business model.”
Put options against Netflix — a wager that its stock will fall — boosted results in the third quarter for Einhorn’s firm, Greenlight Capital, according to a letter to investors seen by Bloomberg. The shares have tumbled from their all-time high in 2018, rewarding Netflix bears. And they were down 27% in the third quarter after gaining the previous two periods.
Einhorn said he’s been negative about Netflix “for a long time.” Subscribers and sales have increased, but “cash costs have grown even faster,” he said. “This year the company projects to burn a stunning $3.5 billion on just $20 billion of revenue.”
The investor is taking aim at Netflix during a time of mounting competition. AT&T Inc. just unveiled HBO Max, a service that will go live in May. And Apple Inc. and Walt Disney Co. are both launching new online platforms in the coming days.
In the process, big media companies have sought to lock down more of their content for themselves, rather than licensing it to Netflix.
Netflix originally created a niche by “licensing cheap content and growing its subscriber base with a low-priced, value offering that aggregated hundreds of popular titles owned by major studios,” Einhorn said. “That arbitrage has gone away as the cost of licensed content has soared, competition has intensified and traditional studios are pulling their libraries.”
Netflix declined to comment on Einhorn’s letter.
Plenty of investors remain bullish on Netflix. The shares gained on Wednesday after AT&T unveiled HBO Max, a sign Wall Street thinks that service’s higher price — $15 a month, compared with $13 for Netflix — may put off consumers. And reviews for the new shows on the Apple TV+ platform have been tepid.
It’s also not clear if Einhorn has profited in the long term from betting against Netflix. He’s had positions against the company since at least 2016, and its stock has gone up the past four years.
But the investor argues that Netflix will struggle to replace the shows it’s losing to other streaming networks, including “Friends” and “The Office.”
None of Netflix’s original shows have the same kind of staying power, Einhorn said. Netflix “does not appear to have created any similar franchises to rival the longevity of the shows it is losing, as viewership tends to collapse soon after introduction. When was the last time you heard anyone mention watching ‘House of Cards’?”
To contact the reporters on this story: Joshua Fineman in New York at [email protected];Lucas Shaw in Los Angeles at [email protected]
To contact the editor responsible for this story: Nick Turner at [email protected]
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