Hedge funds are betting billions that Netflix stock will tank

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After being the darling of Wall Street last year, Netflix hasn’t had a pleasant 2016 in the stock market, which has brutalized it to the tune of -22% year-to-date.

Hedge funds, in particular, have made big bets that Netflix will fall, according to a new report by Goldman Sachs. The report tracks the 2016 Q1 activity of 841 hedge funds, and shows that they have large short positions on Netflix.

The report pegs the value of short interest at $3.4 billion as of April 29, representing a whopping 9% of float (the amount of shares readily available for trading).

International doubts

Wall Street confidence in Netflix was shaken by its latest quarterly report on April 18, which showed strong results for the first three months, but put out an international subscriber growth estimate for Q2 that was well below Wall Street targets.

After Netflix’s 130-country launch in January, which put it in every major market except China, international subscriber growth has been the key metric on Wall Street’s mind. It beat Wall Street expectations for Q1, adding 4.51 million subscribers internationally versus Wall Street estimates of 4.49 million.

But a source of concern has been the small library of content that Netflix has in certain newly launched countries. And last month, UBS estimated that Netflix was seeing mixed results in its new markets, with some like India and South Africa doing well, and others lagging, like Russia and Turkey.

Netflix’s company narrative had focused on its compelling original content as a strength internationally, since the licensing is much simpler. The company will release 600 hours of original content this year, including 31 original shows. In its quarterly letter to shareholders, Netflix blamed some of the shortfall in its international-subscriber growth forecasts to issues related to last year’s anomalous Australia/New Zealand launch.

Additional reporting by Bob Bryan.

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