M&A headwinds could weigh on the stock, per the short seller
The shares of FAANG stock Netflix, Inc. (NASDAQ:NFLX) popped on Wednesday, thanks to a bullish analyst note from Goldman Sachs. However, notable short seller Citron Research today opined that yesterday's note "offset the negative news of the merger" between fellow media companies AT&T (T) and Time Warner (TWX), and the fact that the deal wasn't even mentioned by Goldman was "negligent." Further, Citron believes NFLX stock could fall in the near term, amid M&A headwinds and pressure from fellow FAANG members.
Specifically, Citron Research noted that Apple (AAPL) is "building a team focused on original programming and is already hiring Netflix executives." Meanwhile, Amazon (AMZN) has "billions to lose and a captive [Prime] membership," while Google parent Alphabet (GOOGL) is also focusing on premium content. What's more, of all the FAANG stocks, "Netflix continues to be the most expensive," despite being the only one to generate negative cash flow. Against this backdrop -- and with Comcast (CMCSA) and Walt Disney (DIS) also on the M&A warpath -- the short seller expects NFLX shares to drop to $340, which would be about a 13% fall from current levels.
While NFLX stock initially pared some of its gains after the Citron tweet, the stock was last seen trading 2.8% higher at $390.64 -- within striking distance of today's new all-time high of $391.15. The equity has now more than doubled in 2018, with pullbacks contained by its 60-day moving average.
While Citron may think the FAANG stock is due for a pullback, seasonality is in the streaming giant's favor. In fact, NFLX has been one of the best S&P 500 stocks to own in the summer months, averaging a June-August gain of 7.71%, looking back 10 years, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, Netflix shares have ended this stretch higher 70% of the time.
Whether bullish or bearish, one thing is certain: NFLX has made bigger-than-expected moves on the charts during the past year, from an options-pricing standpoint. The stock's Schaeffer's Volatility Scorecard (SVS) sits at 96 out of 100, suggesting the options market has underpriced volatility expectations during the past 12 months.