Real Money Pro's Doug Kass warned on Tuesday morning that Netflix (NFLX) subscriber numbers could disappoint after the close. He was so certain, in fact, he even sold his Disney (DIS) position -- one of his favorite stocks.
"I am of the view that Netflix might have some bad subscription numbers today after the close. If so, streaming companies could get hit. I sold Disney DIS for that reason this morning," is what the hedge fund manager wrote around 10:40 a.m., hours before the devastating report landed.
He was right, of course. Later that evening, Netflix was in near free-fall after-hours and Disney slipped to around $127.
This wasn't his first warning, however, of the risks for the streaming favorites. Months earlier, Kass also forecast that such names would see "profitless prosperity," as he put it.
In an in-depth post about the woes ahead, he warned of the companies' high valuations based on the assumption of rapid growth; their rising acquisition costs per customer -- their "reckless" spending on programs and ads -- and large operating losses and negative cash flows. He also noted the threat of a competitive market place in which numerous competitors are all fighting for market share -- with a number of recognizable brands and well financed participants.
Most notable, he wrote back then, "weekly average users (streaming customers) have likely peaked."
If you were a Real Money Pro subscriber, you would have gotten the warning about Netflix's disastrous earnings report before it happened. Stay ahead of the next big move by subscribing to Real Money Pro. Get access to our top-notch team of over 30 contributors who offer daily market commentary, actionable trading ideas, investment advice, and education. This product is different because it's not journalists writing about the market, it's people who actually invest, trade, and manage money for a living sharing their expertise.
As one commenter to the Daily Diary posted Tuesday afternoon in response to Kass' Netflix post: "I'm just going to cancel all my other trading subscriptions. Having analyzed them all over the last year, your stock analysis is just absolutely superior. I've analyzed them all. Everyone else is chasing technicals and nobody does good analysis anymore."
Another commenter wrote: "Followed Dougie and sold Disney at $131 and its now trading $125 AH. Will repurchase DIS shares tomorrow. Thanks DK."