Netflix Short Was Hedge-Fund Manager Whitney Tilson's Biggest 2010 Loser

Date: Friday, January 7, 2011
Author: Kelly Bit, Bloomberg

b Whitney Tilson, co-founder of hedge fund T2 Partners LLC, said Netflix Inc. was his biggest loser in 2010, less than a month after the movie-rental company’s chief executive officer publicly asked him to stop betting against it.

T2 Partners, based in New York, incurred “significant losses” in its short portfolio for the second year in a row, according to a Jan. 4 annual letter to investors obtained by Bloomberg News. Tilson indicated he would stick with the holding even though it’s been a money loser.

“We are not yet conceding that we’ve made a mistake in our analysis, but we obviously made a mistake in terms of timing our entry into the position,” Tilson wrote. “We think highly of Netflix, just not its valuation.”

Netflix’s stock more than tripled in price last year. Its short interest -- the number of shares borrowed and sold in anticipation of lower prices -- peaked in April 2008 and has dropped by more than half since then. Short interest in the Los Gatos, California-based company was 10.2 million shares in mid- December, down from 23.2 million at its highest point.

“It is possible that one could make money shorting Netflix today,” CEO Reed Hastings, whose movie-rental company has moved to online delivery from DVDs, wrote in a Dec. 20 posting on the Seeking Alpha investing website. “But shorting a market-leading firm as it is driving a huge new market is a very gutsy call.”

Netflix reached a closing high of $205.90 on Nov. 30. The company fell $1.12 to $178.61 at 2:19 p.m. New York time in Nasdaq trading.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net