Whitney Tilson Covers Netflix Short, Price/Sales At New High 5.81 - NFLX

It was all over Twitter that Whitney Tilson (T2 Partners) covered his short position in Netflix ($NFLX). He released a report at Value Investing Letter explaining why.

"Why We Covered Our Netflix Short
By Whitney Tilson and Glenn Tongue, Managing Partners, T2 Partners LLC

In mid-December, we published a lengthy article on why Netflix was our largest bearish bet at the time. With the stock up nearly 25% since then, one might assume that we’d think it’s an even better short today, but in fact we have closed out our position because we are no longer confident that our investment thesis is correct. There are three primary reasons for this:" (continue reading at VIL)

In other NFLX news, its price/sales ratio (5.81) broke above the March 2004 high (5.57) and revenues have been growing since 2001. Want to see something interesting? Take a look at NFLX price/sales and quarterly revenue going back to 2002.

In March 2004, NFLX traded at 5.57x sales with $100.37M in revenue;
In March 2005, NFLX traded at 1.04x sales with $152.45 in revenue;
Price/Sales -.82%, Revenue +52%

In June 2007, NFLX traded at 1.16x sales with $303M in revenue;
In September 2010 (mrq), NFLX traded at 4.22x sales with $553M in revenue;
Price/Sales +263%, Revenue +82%

You see how the Price/Sales relationship flipped? What happened there? It shows that NFLX's multiple to sales can change quickly even if sales keep growing. From March 2005 to March 2010 its P/S ratio stayed between 1.04 and 2.25. Careful with this stock. At the end of Tilson's report, he still said he didn't think it was a buy with Netflix "trading at 75.0x trailing EPS of $2.96." Read the full report.

Netflix Stock Chart by YCharts

Previous post 9/29/2010: Netflix vs. Gold, NFLX Price/Sales Ratio at 2003 Highs, Going Parabolic!