The stock price of the streaming giant Netflix (NASDAQ:NFLX) increased by roughly 50% since its low in May. Investors have been encouraged by the company’s better-than-expected quarterly results, the promise of new features to revive growth, and the overwhelming success of the third season of the sci-fi thriller “Stranger Things.”
Short sellers, who borrow shares to sell, lose because they count on repurchasing them at a lower price to make a profit. According to S3 Partners, they have lost $996 million in mark-to-market value since the middle of May.
Because of escalating rivalry, consumers’ tightening budgets due to growing inflation, the prospect of a worldwide recession, and the end of the pandemic-fueled streaming boom, Netflix’s stock plummeted 72% in May.
“Bearishness was extraordinary,” said Neil Campling, head of technology, media, and telecom research at Mirabaud Securities. “The stock reached very oversold levels and traded at a deep discount to trend valuation, peers, and history.”
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, estimates that shorts that have been negative since the beginning of 2022 are still sitting on $2.69 billion in mark-to-market gains despite the stock being down 59% thus far in 2022.
Netflix Shares Analysis
Shares of Netflix (NASDAQ:NFLX) have risen recently on the back of anticipation for the launch of a new version of the streaming service that will include advertisements, a crackdown on password sharing, and better-than-feared customer loss in the second quarter. And following two consecutive quarterly declines, the firm expects its subscriber base to increase.
Bears who lost faith in their wagers may have fueled the upswing by selling off their positions. According to S3 Partners, short sellers repurchased nearly 2.4 million shares last month, spending $599 million. Due to Netflix’s increase in value, the number of shares borrowed to cover short positions decreased by 18%.
After the most recent results call, “Netflix shorts have been aggressively cutting their short position,” Dusaniwsky said, “hoping that the worst is over and that this quarter would show stronger profitability and/or user growth.”
Despite the recent gains, Netflix’s (NASDAQ:NFLX) stock is still at a discount. As a result, they are valued at around 22 times expected earnings for the next year, which is much lower than the 10-year average multiple of 80 times. Comparatively, the price-earnings ratio of the S&P 500 is 18, while that of the Nasdaq 100 is 24.
Others are preparing for turbulence since growing expenses and worries about the competition aren’t going away anytime soon.
Miller Tabak & Co. chief market strategist Matt Maley predicted the Netflix (NASDAQ:NFLX) shares would do well over the next 12 to 24 months but noted that investors would have a better opportunity to buy in the autumn.
Featured Image: Megapixl @Prykhodov
Author Shariq Khan 
