Netflix Trades Give Whitney Tilson Whiplash

When it comes to stock trading, timing is everything.  This is a hard learned lesson for hedge fund manager Whitney Tilson.  After being a strong bear on Netflix (NASDAQ:NFLX), Tilson sent a letter to investors in February explaining that he covered his short position.  At the time of the letter, shares traded near $220.

As it would turn out, Tilson was right to be bearish on Netflix.  After climbing to a high of $300 in July, shares started to plummet.  However, due to Tilson’s ill-timed short covering, he missed the monumental downfall.  To make matter’s worse, on October 25, Tilson decided to establish a long position in Netflix.  Since then, Netflix shares have declined another 10%.

On Tuesday, Netflix declined nearly 6% after announcing a plan to raise $400 million in cash by offering stock and convertible bonds.  JP Morgan (NYSE:JPM) recently said it believed Netflix may need to raise additional capital.  The company finished September with $366 million in cash and short-term investments.  However, the company owes more than $3.5 billion over the next several years to buy the rights to TV shows and movies.  Rising content costs have been a long-term concern for investors.

Whitney Tilson weighed in on the recent developments in Netflix.  He said, “When you’re betting on a medium to long-term turnaround, you first have to make sure that the company doesn’t hit a cash shortfall in the short term.  This capital raise is a good insurance policy.  That said, it is irritating to see a company we own issuing stock at 1/3 the price at which it was buying it only months ago-yet another example of the capital misallocation decisions that are all too common in Corporate America.  Netflix should have done a big secondary and issued a lot of stock in the $200-$300 range.”

Netflix spent almost $200 million in buybacks during the first nine months of 2011, with an average price of $222 per share.  Currently, shares trade near $70.

Here are a bunch of stocks related to Netflix which are worth researching deeper: Coinstar, Inc. (NASDAQ:CSTR), DISH Network Corp. (NASDAQ:DISH), Comcast Corporation (NASDAQ:CMCSA), Time Warner Inc. (NYSE:TWX), The Walt Disney Company (NYSE:DIS), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Cablevision (NYSE:CVS), Google Inc. (NASDAQ:GOOG), DirecTV (NASDAQ:DTV), CBS (NYSE:CBS), TiVo (NASDAQ:TIVO), AT&T (NYSE:T), Verizon (NYSE:VZ), Sprint (NYSE:S) and Time Warner Cable Inc. (NYSE:TWC).