Peer into the corner of the trading floor and you'll likely spy market pros tossing around a sensitive but potentially lucrative trading idea – who will be the next Netflix?
In other words what other high flier is destined to come back to earth?
We couldn't think of anyone better to ask than famed short seller Whitney Tilson. (As you may remember Tilson shorted housing stocks ahead of the subprime crisis.)
”We’ve actually looked out there,” Tilson tells us. “We asked ourselves what’s the next stock that’s going to decline 75%.”
And after crunching the numbers Tilson tells us that he thinks the answer is Salesforce.com.
”It’s a good company but it trades at a very unrealistic valuation. We’ve made a fairly sizable bet on the short side that Salesforce is the next to blow,” he says.
Tilson's thesis is simple – he thinks the stock price has been driven by irrational exuberance about the pipeline. “(Although) the company has a nice app to help mid-size companies manage their sales forces," Tilson thinks something much bigger is priced into the stock.
“The CEO has generated a lot of enthusiasm about the company’s potential in large enterprise space. We’re very skeptical of that. Yet it’s already priced into the stock.”
And he points to another – almost eerie coincidence. The market cap for Salesfore is a little above $16 billion – the same amount as Netflix before it’s decline.
”We think at the end of the day fair value is down 75%,” he says.