market folly

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners recently sent out their latest letter to investors providing an update on many of their portfolio positions.  T2 is up 25.8% for the year versus the S&P at 11.9%.

T2's Longs

Disclosed longs in this letter include: Netflix (NFLX), SanDisk (SNDK), Grupo Prisa (B shares), Goldman Sachs (GS), Citigroup (C), Barnes & Noble (BKS), dELiA*s (DLIA) and AIG (AIG).

T2's Shorts

Nokia (NOK), First Solar (FSLR), Tesla (TSLA) and Interoil (IOC) are mentioned as shorts.

On Their Position in Netflix (NFLX)

In the letter, he updates the latest activity on this volatile stock, writing:

"We’re comfortable with a 5-6% position size – but the stock price has been extremely volatile, ranging from $62 to $129 in the six months we’ve owned it, so we’ve done much more trading than we normally do, first trimming aggressively and banking a lot of profits as the stock skyrocketed earlier this year, and then adding to our position recently after it fell sharply.

The company reported very strong Q1 earnings a week ago: revenues grew 21%, domestic streaming subscribers jumped by 1.7 million to 23.4 million, international subscribers grew by 1.2 million to 3.1 million (up 282% year over year), and total unique subscribers grew by 2.9 million to 29.1 million (including the DVD-by-mail business).

So why was the stock down so much? Netflix’s guidance for Q2 was weaker than expected: a projected gain of only 190,000-790,000 domestic subscribers and 385,000-935,000 international subscribers. Bears see this as the beginning of the end of Netflix’s subscriber growth, but we see it as typical second quarter seasonal weakness combined with the company being very conservative in its guidance, setting a bar that should be easy to clear. We believe what the company wrote in its earnings release – “We see nothing new or particularly concerning this quarter to date in our member viewing, acquisition and retention. All are healthy.” – and have no reason to doubt Netflix’s guidance of “about 7 million...domestic streaming net adds” for all of 2012."


Embedded below is T2's letter where they also provide updates on their positions in SanDisk, Barnes & Noble, as well as Grupo Prisa:




For more from this fund, we've also posted up Tilson's presentation at Stern's Hedge Fund Association Summit as well as his talk at a long/short investing panel.