Netflix Burns Shorts as ‘Extreme’ Bearishness Ebbs- Shares Bounced Whopping 50%
Investors who bet against Netflix Inc. in recent months might now be licking their wounds. Shares of the streaming giant have surged 50% from their May low, buoyed by the promise of new features to revive growth, better-than-expected quarterly results and the runaway success of the latest installment of sci-fi thriller “Stranger Things.”
That's hurting short sellers, who borrow shares and sell them, hoping to buy them back at a lower price to profit from the difference. Since mid-May, they have seen $996 million in mark-to-market losses, according to S3 Partners.
At its May low, Netflix was down 72% for the year as the company faced mounting competition, customers whose finances are getting pinched by rising inflation, the possibility of a global recession and the end of the pandemic-fueled streaming boom.
“Bearishness was extreme,” said Neil Campling, head of technology, media and telecom research at Mirabaud Securities. “The stock got to extreme oversold levels, and traded at a massive discount to trend valuation, to peers, and to history.”
To be sure, with the stock still down 59% in 2022, shorts that have been bearish since the start of 2022 are still sitting on $2.69 billion in mark-to-market profits, according to Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
The recent rally in Netflix shares reflects optimism about the start of a much-anticipated version of the streaming service that will carry advertising, a crackdown on password sharing and better-than-feared second-quarter subscriber loss. The company also forecast growth in its subscriber base after two quarters of contractions.
Bears who gave up on their bets may have added fuel to the surge. In the past month, short sellers have bought
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