Billionaire hedge fund guru David Einhorn at Greenlight Capital shorted large-cap tech players and has lived to tell the tale- but not without losing a chunk of change on his “bubble basket” including Tesla Inc (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), and Amazon.com, Inc. (NASDAQ:AMZN).
Some might argue Einhorn is a brave billionaire to dare to bet against Tesla CEO Elon Musk and the rest of the giants; others will say the man is a poor poker player who overshot his luck. Either way, one thing is clear: the guru is left feeling “frustrated” at best, noting, “The second quarter was a bit of a head-scratcher. Our five biggest longs reported earnings that met or exceeded expectations, while our shorts announced earnings that mostly disappointed. Nonetheless, we lost money in the quarter.” Let’s explore (To watch Einhorn’s track record, click here):
Tesla’s Musk Gets the Last Laugh After Einhorn’s Bearish Play
Is Tesla’s Elon Musk the next Steve Jobs? Not according to Einhorn, who scoffs at those bulls who wager this and go as far as to “decide TSLA is the next Apple.” Whereas Apple’s iPhone was “immediately profitable,” the same cannot be said for Musk’s Tesla, argues the hedge fund guru, as “TSLA is capitalized to survive only the next three quarters.”
Moreover, Einhorn points out that Apple had a rivalry upper hand with “competition […] very slow to develop,” whereas conversely for Tesla in the electric vehicle arena, “every major car company in the world intends to compete […]” In terms of maintaining an edge in the rivalry game, “TSLA is unlikely to sustain a competitive advantage by having a network of charging stations or by accumulating driver data,” asserts Einhorn.
“While its cars do not burn gasoline, the company burns more than enough cash to compensate, and behaves as if it will have access to nearly free capital for the foreseeable future,” the guru explains, seeing different writing on the wall, leading him to defy Musk’s lofty expectations. However, Musk appears to get the last laugh, sending out this feisty Tweet to his army of short cynics, cheekily venturing, “Stormy weather in Shortville …”
True, over the weekend, Musk noted his giant’s stock trading price “is higher than we have the right to deserve” to the National Governors Association meeting, which caused the stock to take a dip yesterday. Yet, overall, Tesla has been on a sturdy rally, and Einhorn is now licking his wounds.
TipRanks analytics reveal TSLA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 6 are bullish on Tesla stock, 7 remain sidelined, and 4 are bearish on the stock. With a loss potential of nearly 8%, the stock’s consensus target price stands at $298.14.
Netflix’s Glimmering Second-Quarter Print Bad News for Einhorn
Netflix wowed with a sharp beat yesterday with its second quarter earnings that has bulls out parading and shares soaring 13% today. All but Einhorn are cheering after the video streaming giant posted $2.79 billion in revenues, marking outperformance to the tune of $30 million and a year-over-year skyrocket of 32%. So why did Einhorn find it wise to bet against Netflix?
Well, in Einhorn’s words, when looking at the first quarter, “Netflix (NFLX) missed guidance for new customers and increased its forecast for cash burn. The company’s key metrics are all deteriorating and customer acquisition costs are higher, yet the stock ended the quarter up 1% to $149.41. Cash investment in content is now more than 100% of revenues, and the company is growing its content spend per customer faster than it is growing revenue per customer.”
Furthermore, “The company is showing improving GAAP margins by slowing its amortization of content investment, but there isn’t enough information disclosed to determine whether there is a good justification for this seemingly aggressive change. In any case, the company has not demonstrated that its heavy investment in content yields a positive economic return. Further, despite the availability of nearly free equity, NFLX is funding its cash burn with debt,” contends Einhorn. However, the giant’s bullish base has plenty of room to disagree today after this latest earnings success.
TipRanks analytics indicate NFLX as a Buy. Based on 27 analysts polled by TipRanks in the last 3 months, 20 rate a Buy on Netflix stock, 6 maintain a Hold, while 1 issues a Sell. The 12-month average price target stands at $186.38, marking a 2% upside from where the stock is currently trading.
Amazon’s Whole Foods Purchase Has a Skeptic in Einhorn
Amazon is another one of Einhorn’s bearish gambles that ultimately did not pay off for Greenlight. Considering the online auction and e-commerce leader’s recent momentum, it is no wonder Amazon is another peg in Einhorn’s coffin of financial toss-ups, explaining why “The short book proved more costly […]” for the guru.
The reason Einhorn had false confidence to go against Amazon boils down to a general sense of overinflated positivity that followed the company’s $14 billion Whole Foods acquisition, as the guru highlights, “When companies announce large acquisitions, they typically explain the implications and strategy. AMZN has said nothing and left the interpretation to the market’s imagination, which for the time being skews optimistic.”
“Amazon (AMZN) rose 9% for the quarter to $968 after modestly beating March quarter sales and earnings estimates (which had been reduced when the company announced December results). However, it again guided down next quarter estimates to well below consensus expectations. Since last October, consensus 2017 earnings estimates have fallen significantly from $10.75 to $6.73, while the shares have risen 16%,” surmises the guru. Yet, most of the market disagrees, as bullish sentiment has been rising following the Whole Foods deal. This quarter was not the kindest to Einhorn, clearly.
TipRanks analytics exhibit AMZN as a Strong Buy. Out of 28 analysts polled by TipRanks in the last 3 months, 25 are bullish on Amazon stock while 3 remain sidelined. With a return potential of 10%, the stock’s consensus target price stands at $1,130.29.