The analysis behind the Netflix trade

Netflix is hated, shorted, maligned, and down nearly 70% from its highs a few months ago. The bear case for the company, especially that of higher content costs and the brand/subscriber-growth hit that they took six months ago has been discussed endlessly in the mainstream media and on Wall Street. The biggest bulls in the stock six months ago are out of it, have sold it and probably took it off their screen entirely, unless they’ve shorted it. Few momentum guys are long this one anymore.

And I think the anti-Netflix backlash from a few months ago when they’d split their DVD and streaming businesses, is likely over amongst consumers now, even as Wall Street thinks the brand is still tainted.

The upshot and the reason I’m taking a gamble on some near-term calls in this one is because I think the company’s likely to come in pretty good on the numbers relative to expectations and if the company finally delivers a strong quarter of revenue growth and subscribers increase any better than expected at all, I think this thing could easily pop 15% or more tomorrow. That said, as always, if the company misses and/or guides badly and/or shows a huge spike in expenses and content costs, the stock will be down tomorrow and I’ll lose on these calls. But a 15% pop on good numbers would pay big profits on the calls, and I’m willing to risk a small bit of capital on the trade.