Greenlight Capital's David Einhorn, the successful short seller whose returns have suffered as of late because of the bull market run, told clients in a letter Tuesday that the hedge fund has added to its short position in Netflix.

"We have been negative on NFLX's earnings prospects for a long time, and we used the late- 2019 bounce in the shares to make it a more substantial investment," wrote Einhorn in the letter.

As competition increases, and Netflix continues to spend cash on original content, Einhorn said the outlook for the stock is weak.

"To the extent the market sees the NFLX growth story as 'busted,' there is a lot of downside to the shares. At present, NFLX burns several billion dollars a year in cash and has accumulated a heavy debt load, even before considering future content commitments," Einhorn added.

The hedge fund manager, who's made winning bets against busts such as Enron, pointed to increased competition from new streaming services as a major challenge for Netflix. Disney and Apple both launched Disney+ and Apple TV+ last year. In the coming months, AT&T's WarnerMedia will launch HBO Max and Comcast's NBCUniversal will roll out Peacock in April.

"NFLX is no longer the only value-priced streaming VOD provider. There are now a half-dozen subscription services and in the coming year there will be additional credible entrants with deep content libraries," Einhorn wrote. "Not every customer will choose to subscribe to all services, and on the margin, substitution will occur."

The letter comes as Netflix is set to report its fourth-quarter earnings after the market close Tuesday. Einhorn said he expects to see slowing domestic subscriptions and increased cancellations. He expects to see growth in international subscriptions, but added that the international audience is not as valuable as the domestic one.

Netflix stock was down modestly Tuesday.

Greenlight returned just under 14% in 2019 according to the letter, less than half the return of the S&P 500. This follows a 34% loss in 2018. Still, the fund has returned 12.7% annually, net of fees and expenses, to investors since its inception.

Disclosure: Comcast owns NBCUniversal, parent company of CNBC.