Netflix has a problem: It's you.
That's according to Crispin Odey, one of London's biggest hedge fund managers.
Voracious consumers are watching Netflix's content more quickly than the online streaming service can replenish it, Odey said during his hedge fund's second-quarter phone call, a 53-minute recording of which was obtained by Business Insider.
Odey's observation is interesting since Netflix already produces a lot. This year alone, the company plans to release 600 hours of content, which would take 25 days to binge-watch straight through.
Odey's $9.3 billion hedge fund held a short position in Netflix as of hte July phone call, meaning that the firm would earn money if the stock price drops.
Here are Odey's key points from his firm's call:
- Investors need to see the potential for yield in Netflix.
- Odey thinks that Netflix needs $17.5 billion of sales by 2020 and $8.7 billion of sales by this year.
- Revenues in the past four quarters total $7 billion.
Here's the key quote (emphasis added):
"It's a great business but the fact is you watch their programs faster than they can make them...Their need to buy in basically new content...is so much faster than their subscriber growth.So in fact we would say, this is absolutely impossible for them to achieve. And what you can see is their cash flows, which are on a quarterly basis are negative, and remain negative, so we think actually it's a good short."
Netflix missed its earnings big time last month, as Business Insider previously reported. Its stock price plummeted the day the company announced its disappointing second-quarter results on July 18, though the shares have since regained most of the losses.
Odey wasn't the only fund manager set to gain on Netflix's bad news. Other short sellers made nearly half a billion just in trading in the after-hours of Netflix's stock drop. It's not clear how much Odey made off of Netflix's drop and whether the firm still holds its short position.
He gained the spotlight earlier this summer after making money off of the Brexit, but his firm has since nursed deep losses.
One of Odey's funds, the $476 million Swan fund, has dropped -24.7% this year through the end of June, according to an investor update viewed by Business Insider. Odey's European fund dropped -30% through July 14, according to Financial News.
A phone call and an email to Odey's media contact, Lucy Brantly, were not immediately returned.
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