Netflix Momentum Must Reverse Soon, Claim Short-Sellers: StockTwits

NEW YORK (TheStreet) -- Netflix  (NFLX) shorts are shocked. Shares of the on-demand video company are up 31% in the past month, and the stock shows few signs of losing momentum.

But a majority of investors on StockTwits.com say it's just a matter of time before Netflix sells off -- fast. 

Sentiment on the stock is 57% bearish, according to StockTwits analytics. The reason is that Netflix's multiples just don't make sense to fundamental traders. The company has a near-$26 billion market cap and trades at nearly 63 times forward 2015 earnings. That's an unheard-of price-to-earnings ratio for a media company. Disney  (DIS) trades at 18 times 2015 earnings, for comparison. 

$NFLX This is just prime for a major pullback. Must be insane to buy up here

? Mark Smith (@darwinlives) Jun. 6 at 10:02 AM

$NFLX Adding to short list here. Fundamentals don't support the valuation, highly unlikely to have long term gains from here.

? Sean (@LSValue) Jun. 6 at 09:48 AM

Netflix gained recent positive momentum from two announcements: price increases and European expansion. The company raised its price for streaming content from $7.99 to $8.99 a month.

It also announced plans to expand beyond Northern Europe into other broadband-heavy European countries including Germany, Austria, France, Belgium and Luxembourg. And some bullish investors believe that Netflix's European prospects give the company plenty of upside.

$NFLX buy every dip!!!

? DJS (@Dsteigerct1) Jun. 6 at 09:27 AM

But most investors on StockTwits.com say Netflix can't sustain its valuation. Content costs and competition will ultimately eat into Netflix's profits, they argue, and the bulls driving the stock higher will realize that it can't grow into its valuation.

Netflix spent $65.93 million to acquire DVD content in the last three months of 2013. That's up from $48.28 million from the same period a year ago. It spent another $14.9 million on its DVD library in the first three months of the year, though that was slightly less than the $21.2 million it spent during the same quarter in 2013.

$NFLX everyone is so bullish on this, I am more confident in my short. Valuation taking into account raising content costs is scary.

? Sean (@LSValue) May. 29 at 05:19 PM

Ballooning content costs make it impossible for $NFLX to grow into its valuation. http://stks.co/b0OmL

? David Trainer (@dtrainer_NewConstructs) Apr. 2 at 11:22 AM

Competition could also hampering Netflix's ability to raise subscription prices. Amazon  (AMZN) charges $99 a year for its Prime service -- less than the $107.88 a new Netflix subscriber would pay. And Amazon's Prime subscription comes with free two-day shipping on many items in its store in addition to on-demand video streaming.

As a result, investors on StockTwits believe Netflix's valuation has to come down. The only question is when.

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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