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Netflix at $200 Isn't Crazy Anymore

By Rick Munarriz - Oct 11, 2017 at 1:46PM

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The top dog in premium streaming is hitting new highs, but it comes at a time when the value of short positions has never been higher. Something has got to give.

Shares of Netflix (NFLX -0.98%) hit another all-time high this week. The leading premium streaming service is drifting higher after moving to hike prices on some of its plans last week. The ceiling is rising on Netflix's revenue per subscriber, and with that it's only natural to see the ceiling on the stock itself move up unless the dot-com darling stretches the limits of its pricing elasticity.

Longs are happy. Shorts are not. The stock hitting $199.40 on Monday finds it closing in on $200, a round sum that would actually be $2,800 if not for a pair of stock splits along the way. That's not too shabby for a stock that went public at $15 -- split-adjusted to $1.07 based on today's prices -- a little more than 15 years ago, only to go on to lose two-thirds of its value when it bottomed out a few months later. 

Netflix is rolling again, but good luck convincing naysayers that this isn't a bubble.

The cast of "Sense 8" toasting at a bar.

Image source: Netflix.

Short-sellers circle

There were 29.6 million shares of Netflix sold short as of mid-September, its highest level of bearish activity since October of last year. The stock has nearly doubled in that time, a cruel reminder to those betting on the stock's decline that calling the top on a winner can be even harder than calling the bottom on a loser.

The doubters aren't going anywhere, at least until they get their margin calls or are convinced they're fighting a losing battle. Last week's rate hike could've triggered a short squeeze, and we'll find out if that happened later this month when we get Netflix's mid-October short interest. However, before we even approach that pocket of insight, we have Netflix reporting third-quarter results early next week. Last year's third quarter was a blowout, sending the stock 19% higher the following day. Then again, Netflix stock was also coming off of a disappointing second quarter -- and the stock was trading for half of what it's fetching at the moment. 

It's still easy to picture Netflix coasting north of $200 on a strong report, and that's if the shares don't drift higher in the next couple of days ahead of the fresh financials. Many Wall Street pros are already on that side of the fence. UBS issued a $225 price target on the shares earlier this month, and that comes three months after BTIG analyst Rich Greenfield also boosted his goal on the stock from $170 to $225. 

This week alone we've seen Morgan Stanley go to $225 and Loop Capital bump its price target to $228, following last week's price hike on Netflix's most popular streaming plan. Momentum is clearly in Netflix's corner, and as the best performer among S&P 500 stocks over the past decade -- even though it's only been in the index since 2010 -- betting against the stock has been as wrong as it's been dangerous. 

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