David Einhorn has seen enough of Netflix.
The stock has rallied 7 percent to start the year, closing at a record $133.70 on Friday. Einhorn, the founder of Greenlight Capital, said in his annual letter to shareholders on Tuesday that he added Netflix to his "bubble basket" because the company is poorly positioned to take advantage of the incoming president's policies, particularly tax cuts on corporate profits.
"Bubble basket stocks mostly don't have profits, which makes them unlikely to benefit from corporate tax cuts," Einhorn wrote. "Further, an accelerating economy should allow investors to find growth without needing to pay nosebleed prices for a narrow group of profitless top-line growth stocks."
Netflix operates on razor-thin margins due to the high costs of acquiring original content. In the third quarter, the company generated $75 million of net income on $2.29 billion of revenue, for a net margin of 2.3 percent. That percentage is expected to hold when Netflix reports fourth-quarter results on Wednesday, according to data from FactSet.
Additionally, Netflix could suffer should President-elect Donald Trump push through changes to net neutrality, a rule put in place in 2015 that requires broadband carriers to provide equal treatment to all internet content, rather than charging consumers different rates based on the provider and type of content being delivered. Trump's Federal Communications Commission transition is being led by two lobbyists from the telecom industry, which has generally been opposed to net neutrality in its current form.
Einhorn is also no fan of Netflix's jump into original content, which has produced a number of Emmy and Golden Globe awards and helped bolster subscriber numbers.
Financially, "it has not demonstrated that its huge investment in original content has a positive return," he wrote.
News of the Greenlight letter was first reported by financial blog ValueWalk.