Hedge Fund Titan Bill Ackman Sells All Netflix Stock as Billion-Dollar Bet Flops
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Bill Ackman, the Pershing Square Capital Management founder who less than three months ago bought $1.1 billion in Netflix stock, disclosed on Wednesday that he has sold his entire stake in the company at a major loss.
“While we have a high regard for Netflix’s management and the remarkable company they have built, in light of the enormous operating leverage inherent in the company’s business model, changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value,” Ackman wrote in a letter to Pershing shareholders. “In our original analysis, we viewed this operating leverage favorably due to our long-term growth expectations for the company.”
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The move is an about-face for Ackman, who made a big buy on the company in January and lauded Netflix in Pershing’s March 29 annual report as a company that is “well positioned as a leading beneficiary of the long-term secular growth in streaming, a high-quality business overseen by a world-class management team.” In the same report less than a month ago, Ackman added: “We believe Netflix’s current valuation represents a meaningful discount to intrinsic value for a business of its quality and exceptional growth potential.”
If Pershing bought 3.1 million shares of Netflix stock at its closing price of $359.70 a share on Jan. 26 for $1.1 billion, when the company closed at $226.19 on Wednesday, those shares would be worth about $700 million.
The sale arrives a day after Netflix disclosed that it had lost 200,000 subscribers in its latest quarter, bringing its total number of global members to 221.64 million. More distressing to Wall Street was guidance that the streaming giant expected to lose an additional 2 million subscribers in its next quarter. “I know it’s disappointing for investors, and it is for sure,” co-CEO Reed Hastings told analysts on an earnings call yesterday, adding, “We’re super focused [on] getting back into our investors’ good graces.”
As part of winning back investors, Netflix executives unveiled plans to not only crack down on password sharing, but also eventually introduce a cheaper, advertising-supported tier of the service and continue its expansion into the video game space. Wall Street wasn’t impressed, and Netflix stock fell a steep 35 percent on Wednesday as multiple analysts issued downgrades to the stock target price.
Ackman, in his letter, applauded Netflix’s efforts but said that it wasn’t enough to hold the stock. “While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty,” the activist investor wrote on Wednesday. “Based on management’s track record, we would not be surprised to see Netflix continue to be a highly successful company and an excellent investment from its current market value.”
