Netflix, Inc. (NASDAQ:NFLX) is having a dream period in the US market since the beginning of this year. The stock has jumped around 100% so far in 2015, pushing Netflix above a $40 billion market cap. The streaming company reported that it continues to rapidly expand its global subscriber base, past the 62 million mark by the end of the first quarter. Netflix, Inc. (NASDAQ:NFLX) reported that it added 2.28 million local (U.S) subscribers and 2.6 million global subscribers in the first quarter, beating its own forecast of 4 million total subscriber addition during the quarter. Nearly 25 analysts have boosted their price target on the stock following its strong first quarter results. FBR Capital Analyst boosted its price target all the way up to $900 on the stock, with Netflix’s stock closing at $689.19 on Tuesday. The streaming company announced late Tuesday that the board has approved plans for a 7-for-1 stock split, which will be carried out next month. Almost a year ago, another tech giant, Apple Inc. (NASDAQ:AAPL) utilized a similar 7-for-1 stock split as the stock approached the $700 per share mark. Netflix announced that the stock split will come in the form of a dividend of six additional shares for every outstanding share, with dividends payable on July 14. The stock will start trading at a post-split price on July 15. After this announcement, Netflix, Inc. (NASDAQ:NFLX)’s stock gained 2.6% in the after-hours trading, to $699.56 per share. As Netflix keeps soaring, will this stock split plan help in further pushing the stock upwards? Is the stock a good target to buy now that it will trade at a more reasonable level for the average retail investor?
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How do we get more insights into stocks? We track the hedge fund and insider activity on the stocks to gain the perspective of experienced hedge fund managers and insiders. Tracking the hedge fund positions and quarterly changes of these positions on a stock helps us in understanding how the best minds in finance today, who have to put their money where their mouth is, think about the stocks. On the other hand, insider activity on the stock is also very important, because insiders know a little bit more information about the company than anyone else and can anticipate improve performance or results.
It’s true that hedge funds have been underperforming the market for a very long time. However, this was mainly because of the huge fees that hedge funds charge as well as the poor performance of their short books. Hedge funds’ long positions, particularly in small-cap stocks, performed better than the market. Small-cap stocks, activist targets, and spin-offs were among the bright spots in hedge funds’ portfolios. For instance, the 15 most popular small-cap stocks among hedge funds outperformed the market by more than 84 percentage points since the end of August 2012, returning 142% (read the details here). This strategy also managed to beat the market by double digits annually in our back tests covering the 1999-2012 period.
The number of hedge fund positions in Netflix, Inc. (NASDAQ:NFLX)’s stock among those we track jumped to 47 by the end of the first quarter, from 44 at the end of the fourth quarter. Heading into the second quarter, the aggregate capital invested by these hedge funds in the stock went up to $3.86 billion, from $3.32 billion at the end of 2014. This is a 16% increase in aggregate capital investment by hedge funds during the quarter. However, considering the fact that the share price of Netflix jumped by more than 20% in the quarter, we know that hedge funds’ investment in the stock was actually slightly bearish over the quarter.
Let’s take a look at the insider activity on Netflix, Inc. (NASDAQ:NFLX)’s stock. There were no insider purchases of the stock, but there were many insider sales in the last few months. Leading the way is CEO Reed Hastings, who has offloaded around 220,000 shares in multiple transactions since the beginning of the year. Director Richard Barton also sold around 16,000 shares of the company so far this year. There were other notable insider sales too.
With all of this in mind, we’re going to view the fresh hedge fund activity surrounding Netflix, Inc. (NASDAQ:NFLX).
What does the smart money think about Netflix, Inc. (NASDAQ:NFLX)?
At the end of first quarter, there was a change of 7% in hedge fund positions in the stock from the previous quarter. There were some hedge fund managers who increased their holdings in the company and there were a few who opened fresh positions in the stock in the first quarter.
According to Insider Monkey’s database, Coatue Management, managed by Philippe Laffont, holds the largest position in Netflix, Inc. (NASDAQ:NFLX). Coatue Management holds around 1.7 million shares valued at $734.7 million, comprising 7% of its 13F portfolio. Following Coatue Management is Icahn Capital LP, led by Carl Icahn, holding around 1.4 million shares, worth $588.3 million and accounting for 1.8% of its 13F portfolio. Other hedge funds with long positions in the stock includes Karthik Sarma’s SRS Investment Management, and Lansdowne Partners, led by Paul Ruddock and Steve Heinz.
As the number of hedge fund positions in the stock went up in the quarter, there were a few hedge funds who opened fresh positions in the stock. The biggest position of these was initiated by Criterion Capital, managed by Christopher Lord. Criterion purchased 95,464 shares, which were valued at $39.8 million at the end of the quarter. Eric Chen’s Antipodean Advisors also initiated a $27.1 million position during the quarter. The other funds with new positions in the stock included Christopher Medlock James’ Partner Fund Management, Millennium Management Subsidiary’s Blue Arrow Capital Management, and John Murphy‘s Alydar Capital.
Even though the number of hedge fund positions in the stock has increased, in a relative sense overall, aggregate capital investment in the stock by these hedge funds remained almost flat or slightly negative in the quarter. Many insiders also opted to sell their shares during the quarter and there were no insider purchases of the shares. But, the stock keeps soaring on analyst upgrades and strong global subscriber growth. The stock appears set to go further higher yet with the announcement of the 7-for-1 stock split plans, even though they were widely expected and some even say, already baked into the stock. Nonetheless, and despite hedge funds remaining neutral on the stock overall, based on the recent trend we recommend buying this stock.
Disclosure: None
