The one big problem with Netflix

Crispin-odeyCrispin Odey.

Netflix has a problem. It’s you.

That’s according to Crispin Odey, one of London’s biggest hedge fund managers.

Voracious consumers are watching Netflix’s content more quickly than the online streaming service can replenish it, Odey said during his hedge fund’s second quarterly phone call, a 53-minute recording of which was obtained by Business Insider.

Odey’s $9.3 billion hedge fund holds a short position on Netflix, meaning the firm will earn money if the stock price drops.

Here is Odey’s key point from the call:

  • Investors need to see the potential for yield in Netflix.
  • Odey thinks Netflix needs $17.5 billion of sales for Netflix by 2020, and $8.7 billion of sales by this year.
  • Revenues in the past four quarters total $7 billion.

Here’s the key quote (emphasis ours)

“It’s a great business but the fact is you watch their programs faster than they can make them…Their need to buy in basically new content…is so much faster than their subscriber growth. So in fact we would say, this is absolutely impossible for them to achieve. And what you can see is their cash flows, which are on a quarterly basis are negative, and remain negative, so we think actually it’s a good short.”

Netflix missed its earnings big time last month, as Business Insider previously reported. Its stock price plummeted the day the company announced its disappointing second quarter results on July 18, though the shares have since regained most of the losses.

NetflixGoogle FinanceNetflix regains stock price after disappointing earnings results in July.

Odey wasn’t the only fund manager set to gain on Netflix’s bad news. Other short-sellers made nearly half a million just in trading in the after-hours of Netflix’s stock drop. It’s not clear how much Odey made off of Netflix’s drop.

Odey gained the spotlight earlier this summer after making money off of Brexit, but his firm has since nursed deep losses.

One of Odey’s funds, the $476 million Swan fund, has dropped -24.7% this year through the end of June, according to an investor update viewed by Business Insider. Odey’s European fund dropped 30% through July 14, according to Financial News.

A phone call and email to Odey’s media contact, Lucy Brantly, were not immediately returned.

NOW WATCH: There’s a glaring security problem with those new credit card chips

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.