What's behind Netflix's 22% spike?

@CNNMoneyInvest January 27, 2012: 7:28 AM ET
Netflix stock

Netflix's stock is up more than 20% today, likely from a short squeeze. Click chart for more on NFLX.

NEW YORK (CNNMoney) -- Netflix is the highest flying stock on the S&P 500 (SPX) Thursday, but was its fourth-quarter earnings report enough to justify a 22% run up in the stock?

The short answer: no.

The streaming video and DVD by mail firm is a heavily shorted stock. Roughly 22% of all Netflix (NFLX) buyers have shorted it, or borrowed the stock on a bet that its price will fall.

It's not a surprise for a company's stock to get a lift following strong earnings but in this case, the better-than-expected results pushed investors who borrowed the stock to sell it at a higher price for a loss, according to two traders who have been buying and selling the stock today.

Netflix starts to rebound from Qwikster blunder

"A lot of people don't have the stomach to take the huge loss on the short," said one trader who asked to remain anonymous because of regulatory concerns.

The phenomenon is known as a short squeeze. Investors rush to buy the stock before it heads higher because they must eventually return the shares they borrowed.

A Netflix spokesperson declined to comment.

The company's fourth-quarter earnings beat expectations, despite a 13.5% drop in profit. Overall, Netflix surprised Wall Street adding customers in the fourth quarter and in turn growing sales by 47%.

Netflix's stock dropped 60% during 2011, after a PR nightmare over its attempt to split its service and losing subscribers with a 60% price hike in July.

Richard Greenfield, a technology analyst with BTIG, said the number of hours that subscribers spent watching Netflix bodes well for the long-term staying power of the company.

Netflix said that subscribers watched roughly 2 billion hours of its content during the fourth quarter, its highest amount of record.

"More usage is driving down churn which is helping subscriber growth," said Greenfield.

Nasdaq reports short interest on stocks twice monthly, so investors will have to wait until late January to find out whether more investors are betting on the stock to go down.  To top of page

Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 7:11pm ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.21 0.00 0.00%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.36%4.24%
15 yr fixed3.39%3.26%
5/1 ARM3.36%3.27%
30 yr refi4.34%4.22%
15 yr refi3.38%3.24%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.