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Netflix Inc. (NFLX) stock has jumped by over 100 percent in 2018 while rising by nearly four times since 2015. The move in the stock is likely well deserved considering the whole media landscape is in a tectonic shift trying to play catch up to Netflix’s revolutionary approach to content and its delivery. However, what may be most interesting is that during the first quarter hedge funds and institutions were selling the soaring stock.

The hedge funds actions seem counter-intuitive given the direction of the stock.  However, it could also explain why shares of the stock have continued to rocket higher at the completion of the first-quarter, as many of the hedge funds were trying to crawl their way back into the stock.

Hedge Funds Dumping Shares

Overall almost 39 hedge funds created a new position in Netflix, while 38 added to existing ones. However, surprisingly 56 reduced their holdings, while 18 exited the stock.  In total, the number of aggregate 13F shares held by hedge funds fell by nearly 18 percent during the quarter to roughly 35 million shares.

Reducing Risk

Netflix shares tumbled during the stock market sell-off in mid-February, with Netflix falling by over 12 percent from its highs. The heightened volatility in the stock likely served as a reason for the drop in the number of shares held among funds, as they tried to reduce risk and lock in profits. However, it could also explain why shares soared during the second quarter, as funds likely raced to get back into the stock in the weeks that followed.

Top Funds Were Not Dumping

According to the WhaleWisdom Heat Map, Netflix was one of the hottest stocks among the 150 top hedge funds WhaleWisdom tracks.  Of the 150, 37 of them held Netflix in their portfolio, while nearly half of them had the stock as a top 10 holding.  However, the rest of the industry seemed to be going in a different direction. So, while the top funds were buying and holding on to Netflix, the rest of the industry was going in another direction, serving as a reminder as to why some funds are among the best, while others struggle to beat the averages.

Strong Growth

The stocks strong performance comes from the company’s explosive revenue and earnings growth, as it ramps up the total number of global subscribers. Analysts are looking for the company to report that second-quarter revenue rose by nearly 42 percent, while earnings are forecast to climb by over five times to $0.81 versus last year, when the company reports results on July 16.

Full-year earnings are expected to more than double, while revenue is expected to rise by nearly 38 percent.

With Netflix reshaping the media landscape while posting significant earnings and revenue growth, it’s obvious why the stock was the hottest among the top 150 hedge funds WhaleWisdom follows. It also shows how not all hedge funds are created equal.

This entry was posted on Monday, July 9th, 2018 at 8:42 am and is filed under HeatMap, Hedge Fund News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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