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Investors who have bet against Netflix Inc. in the last few months they might be licking their wounds. The streaming giant’s shares are up 50% from their lows in May, boosted by the promise of new features to reignite growth, better-than-expected quarterly results and the runaway success of the latest installment from the sci-fi thriller “Stranger Things.”

This hurts short sellers, who borrow stocks and sell them, hoping to buy them back at a lower price to profit from the difference. Since mid-May, they’ve seen $996 million in losses in the market, according to S3 Partners.

At its low in May, Netflix was down 72% for the year as the company faced increasing competition, customers whose finances are being hit by rising inflation, the possibility of ‘a global recession and the end of the pandemic-fueled streaming boom.

“The decline was extreme,” said Neil Campling, head of technology, media and telecommunications research at Mirabaud Securities. “The stock reached extreme oversold levels and traded at a massive discount to trend valuation, peers and history.”

Of course, with stocks still down 59% in 2022, shorts that have been bearish since early 2022 still have $2.69 billion in market value gains, according to Ihor Dusaniwsky, managing director of predictive analytics at S3. Partners.

The recent surge in Netflix shares reflects optimism about the start of a long-awaited version of the streaming service that will include advertising, a crackdown on password sharing and a better-than-expected loss of subscribers. the second trimester. The company also forecast growth in its subscriber base after two quarters of contractions.

Bears backing out of their bets may have added fuel to the rally. In the past month, short sellers have bought about 2.4 million shares worth $599 million, according to S3 Partners. That represents an 18% drop in the total amount of shares shorted as Netflix recovered.

“Netflix shorts have actively reduced their short exposure following the most recent earnings call, looking for the worst to be over and for this quarter to reflect better earnings and/or user growth,” Dusaniwsky said.

Netflix stock is still cheaper than usual after its rally. They are priced at less than 23 times projected earnings over the next 12 months, well below the 10-year average of 80 times. The Nasdaq 100 is at 24, while the S&P 500’s price-to-earnings ratio is 18.

Others are bracing for some volatility as competition concerns and rising costs aren’t going away anytime soon.

“These stocks may perform very well over the next 12 to 24 months, but there will probably be a better entry point in the fall,” said Matt Maley, chief market strategist at Miller Tabak + Co.

Technical letter of the day

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