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The Morning Brief: Hedge Fund Favorite Netflix Nosedives
Netflix plunged more than 13 percent on Tuesday, to close at $85.84, after the company issued disappointing subscriber growth figures for the second quarter and issued subscriber guidance for the third quarter that came in well below forecasts. Netflix, which recently lifted a grace period for longtime subscribers of its monthly streaming video subscription service (meaning they now have to pay more), told investors it added just 160,000 U.S. and 1.52 million international subscribers in the second quarter. That was far below market expectations of 500,000 new U.S. subscribers and 2 million international subscribers.
A few Wall Street analysts slashed their price target on the stock as a result. UBS downgraded the stock from buy to neutral and cut its 12-month price target on the stock to $92 from $130. The investment bank wrote in a note to clients that “the thesis for Netflix had been that the cost of its service is so cheap, both on an absolute basis and relative to video alternatives, and user satisfaction so high, that Netflix had significant headroom to raise prices without meaningfully hampering its ability to grow subscribers.” But with the company’s disappointing second-quarter subscriber numbers, and with subscriber growth falling year over year both in the U.S. and internationally, “that presumption is being challenged,” UBS wrote.
Not every analyst agreed. Investment bank Stifel said in a note to clients that it’s lowering its price target on the stock to $120 from $143 but reiterating its buy rating, saying Netflix is still the dominant global video platform. Meanwhile Credit Suisse maintained its Neutral rating on the stock but raised its price target modestly, to $122 from $119, saying demand for its service is strong and that subscriber “churn” should shake out once the price hikes are behind it.
The stock pops up frequently in the portfolios affiliated with Julian Robertson Jr.’s Tiger Management. Seven of 13 Tiger-affiliated firms counted the stock among their top-five holdings, according to portfolio intelligence firm Novus. They include Tiger Global Management, Blue Ridge Capital, and SRS Investment Management.
Tom Steyer, founder of Farallon Capital Management, is increasing his political spending around the country as presumptive Republican candidate Donald Trump’s campaign goes into full swing. Steyer is reportedly funding ad campaigns against Trump in Nevada, Colorado, Ohio, Pennsylvania and New Hampshire through his environmental advocacy group NextGen Climate Action. That group and Steyer’s other advocacy organization, NextGen California, have spent $5.1 billion opposing Trump in this election cycle, according to CNBC.
That’s more than all but three organizations raising money for the anti-Trump cause, and CNBC reports that almost half of that sum has been spent in the past 11 days. This spending spree comes after Trump supporters in the hedge fund community have been largely unsuccessful in rounding up cash for his campaign. At this year’s SALT Conference in Las Vegas in May, SkyBridge Founder Anthony Scaramucci took the opportunity to try to raise money for Trump, but others in the industry have refused to support the candidate. Earlier this month, Paul Singer of Elliott Management predicted that a Trump election would cause a global economic catastrophe, and Renaissance Technologies’ James Simons told CNBC that Trump is “not a good investment.”
Former Visium Asset Management portfolio manager Stefan Lumiere pleaded not guilty in federal court in Manhattan to charges that he defrauded investors in a bond fund by inflating its value and exaggerating its liquidity, according to a Reuters report. Visium, founded by Jacob Gottlieb, managed $8 billion at its peak but was abruptly shuttered last month when two people at the firm pleaded guilty to insider trading charges and two others, a government official and portfolio manager Sanjay Valvani, were indicted. Valvani was found dead of an apparent suicide last month. Visium liquidated its Visium Balanced Fund and agreed to sell its Visium Global Fund to asset management firm AllianceBernstein.
The former Moore Capital Management trader who was fired from the hedge fund firm after he threw a raucous Hamptons pool party that got him sued took to CNBC to defend himself. Brett Barna, who rented a Hamptons house for the bash, told CNBC on Monday that while he regrets “certain aspects” of the so-called Sprayathon party, it was ultimately “good clean fun” that raised $100,000 for an animal rescue charity.
Barna, who told CNBC the party was staffed in part by a former police chief and an eight-person security team, said the allegations of damages were wildly exaggerated and that the property’s owner, Omar Amanat, is trying to extort money from him. In a bizarre twist, Amanat was arrested last week on four fraud charges including securities fraud, according to CNBC. Barna says that the champagne-swilling guests at the party — which CNBC said included little people as entertainers and bikini clad-women on inflatable swans — did nothing illegal and caused no property damage.
Moore Capital dismissed Barna, a seven-year employee of the firm, saying his “personal judgment was inconsistent with the firm’s values,” according to a New York Post report. Barna admitted that he “didn’t know what else they could have done” given the information the firm had at the time. But when asked by CNBC if he thought he might be able to get his job back, Barna said that Moore made its decision when it didn’t have the facts at hand and that more facts are emerging.
But Barna probably shouldn’t hold his breath. For starters, hedge fund firms despise this kind of headline risk. But more importantly, the shindig looks similar to the sort of bash that Peter Nygard might throw. Nygard, of course, is the hard-partying Canadian fashion magnate with whom Moore Capital Management founder Louis Bacon has been embroiled in a long-running battle over their adjoining properties in Lyford Cay, Bahamas.