Greenlight Capital founder David Einhorn says that his firm has increased its short position on streaming video giant Netflix, arguing that “there is a lot of downside to the shares” in a new letter to investors released Tuesday. Netflix will report its Q4 earnings after the market close.
“For years, NFLX has been an open-ended growth story, where the value of a subscription was considered to be underpriced and bulls could dream about future subscriber totals in the context of the global population. The market celebrated NFLX as the king of a perceived ‘winner-take-all’ (or ‘winner-take-most’) global market for streaming video-on-demand (VOD),” Einhorn wrote in the letter. “We believe this narrative is finally coming to an end.”
Einhorn, who has long been bearish on Netflix, argues that the company’s domestic subscriber picture will suffer with the wave of new competitors from big entertainment companies, while the international expansion will be hurt by lower prices in developing countries.
“It appears to us that new subscriptions are slowing and cancellations are accelerating,” Einhorn wrote. “Competition is denting the NFLX domestic story, just as the platform loses its two most popular shows, Friends (in 2020) and The Office (in 2021), forcing management to spend aggressively to create and market binge-and-forget Netflix Originals and stand-up comedy specials, which lack staying power.”
The Office will move to NBCUniversal’s Peacock, while Friends will ultimately shift over to WarnerMedia’s HBO Max. Disney, meanwhile, successfully launched its Disney+ streaming service late last year.
In October, Einhorn told investors that Greenlight made money by betting against Netflix last year. His first letter of 2020 suggests that he hopes to repeat that performance in 2020.