In my 20 years as a journalist, investor, and a trader, there is no bigger warning sign for a company or its stock as when its executives start taking it upon themselves to battle short-sellers who think the stock is overvalued. Such may be the case with Netflix.
Netflix CEO Reed Hastings — who by the way has sold more than $40M worth of his company’s stock in the last 12 months — is stirring up a highly visible public battle with some well-known and respected hedge fund managers who are openly shorting his stock.
A couple of points on this:
1) Netflix is a good company. Hastings is a brilliant man. But he should be focused on running his company not battling a few short-sellers. If the company is being run well the stock will take care of itself.
2) For some stupid reason, CEOs tend to seen their stock price as a direct measure of their ego. Of course, Netflix shares have traded to the stratosphere — has Hastings’ ego gone there too?
3) The action in the stock price is about fair valuation, not always about “is this company good or bad.” If a stock gets overvalued and falls, it does not necessarily mean the comany is “bad,” it could just mean the shares got overvalued. Hastings shouldn’t take the trading personally.
4) These short-sellers — Whitney Tilson and Manuel Ansensio — are particularly smart and have good track records. Bad people to pick a fight with. Ansensio calls Hastings attacks “disrespectful.” I agree.
5) It reflects poorly on the company. It is in bad taste. The street is littered with the bodies of CEOs who attempted to battle short-sellers and eventually lost.
6) Netflix has tons of cash, good cash flow and a great balance sheet. So what exactly are they worried about?
7) If Netflix executives feel so strongly about their stock why are they unloading as if they have just won the lottery? Sure, they have sold through “automatic sales,” but that is a pat defense. If they are so confident in their company’s stock price you would think they would have scaled back the selling. After all, if they are selling they are doing the same thing the short sellers are — trying to lock in the value of a huge run in the stock.
Calm down Reed, get back to real work.