Institutional investors’ sell-off in Netflix ahead of share price tumble

Netflix, Inc. (NASDAQ:NFLX) shares tumbled 10% in after hours trading despite reporting a 57% jump in quarterly profit. The company commented that its recent price hike will limit its short-term subscriber growth. On Monday, we reported (http://www.dataexplorers.com/news-and-analysis/most-shorted-stocks-reporting-earnings ) that institutional investors (who lend their shares) had decreased total holdings in the month running up to the earnings announcement, from 13 million shares to 11.9 million shares. Meanwhile some premature short covering was observed as short interest fell from 13.2% to 8% of total shares outstanding.

It is not unusual for long only investors to predict negative earnings according to academic research: “the results…indicate that the change in institutional holdings in the 5 days prior to earnings announcements is informative…”

For more information on how to interpret and use institutional ownership and short selling around earnings please see this academic paper. http://www.dataexplorers.com/sites/default/files/Short_Sales_and_Earnings_Announcements_1-07-09.pdf