David Einhorn: is Netflix doomed?

Back in September, David Einhorn seemed on track for an “excellent year”, writes the high-profile US value investor in his latest quarterly letter. After office-leasing firm WeWork’s initial public offering failed, many growth stocks wobbled and “there were musings that value investing was ready to rebound”. 

That didn’t last. In the fourth quarter of the year, growth stocks surged again. That inflicted plenty of pain on Greenlight’s portfolio, which is long cheap stocks and short expensive ones. A return of 13.8% for the year lagged well behind the S&P 500, which gained over 30%. 

Greenlight’s short position in car maker Tesla won’t have helped: Einhorn is just one of many investors – including Jim Chanos and Crispin Odey – who have been burned by the stock’s recent surge. Einhorn is sticking with his decision – unlike his peer Steve Eisman, who recently bowed out, saying that “everybody has a pain threshold… when a stock becomes unmoored from valuation… and has cult-like aspects to it, you have to just walk away”. But in his latest update he focused more on another short that hasn’t yet gone his way: streaming giant Netflix.

He thinks hopes of an “open-ended growth story” are about to be dashed. The loss of rights to its most popular series, Friends and The Office (pictured), in the next two years will force it to spend more on new content, while international growth depends on the “marginal economics” of adding subscribers in emerging markets. “This narrative is finally coming to an end.”