Courtesy of Gus Lubin at The Business Insider
Whitney Tilson likes to broadcast his shorts, which of course helps the position. He’s got a new letter explaining why he’s short Netflix even after losing a lot of money (via market folly).
Tilson says Netflix is now his biggest short. That means he increased his position since October, when Netflix did not even make his top ten short holdings. Since mid-October the stock is up over 15% — though it has been slipping recently.
His case against Netflix is simple. First, it’s overvalued:
By any measure, Netflix’s valuation is extremely rich. Based on yesterday’s closing price, it trades at 67.4x trailing EPS ($2.65), 63.1x the high end of the company’s EPS guidance for the full year 2010 ($2.83), and 46.7x consensus analysts’ estimates for 2011 ($3.82). It also trades at 4.6x sales. In short, the stock is priced for perfection and any misstep would likely trigger a huge selloff.
Second, the business model of putting DVDs in envelopes is obsolete. Switching to a streaming model is raises costs. It also means competing better companies:
In short, Netflix is moving from a business in which it was competing against smaller, dying, heavily-indebted companies with inferior business models to some of the largest, most powerful, aggressive and deep-pocketed companies in the world, which have big competitive advantages over Netflix.
Click here to see why Whitney Tilson has long positions on BUD, BP and MSFT >
Why We’Re Short Netflix-T2 Partners-12!16!10
