THE short-seller whose negative treatise against Netflix inc (NASDAQ: NFLX) prompted the company’s CEO to pen a controversial rebuttal in a blog post has covered his short position in the top-performing stock.
Whitney Tilson of T2 Partners LLC disclosed in a letter (PDF 272KB) this week that his firm no longer had any position in Netflix. And he credited Netflix CEO Reed Hastings’ blog post rebuttal and a subsequent in-person meeting as one of 3 reasons for changing his views.
Interestingly, while some IR professionals on LinkedIn and Twitter criticized Hastings for directly engaging a short-seller, Tilson himself praises the move. He describes Hastings as “one of the most down-to-earth, honest and straightforward CEOs we’ve ever encountered.”
Breaking with tradition
Tilson also credits Netflix’s recent strong quarter and a survey of more than 500 Netflix subscribers showing “significantly higher satisfaction with and usage of Netflix’s streaming service than we anticipated” as the two other reasons for changing is opinion.
However, Tilson does not advise buying Netflix stock, which closed Friday at $231.07, up $7.87 or 3.5%. The stock is trading at more than 75 times trailing 12-month earnings.
“In more than 12 years of managing money professionally, we can’t recall an instance in which we paid more than 20x our estimate of normalized, current year earnings for any stock – and this has worked very well for us – so we won’t be buying Netflix anytime soon. But just because we don’t think it’s a good long doesn’t make it a good short,” Tilson writes.
Netflix also is breaking with investor relations tradition in other respects. The company has started using its website and its SEC filings rather than a paid PR wire to disseminate its earnings information.
It also forgoes the standard prepared remarks on its earnings calls and takes dozens of questions via email, a move retail investors have praised as more democratic (see transcript on Morningstar).