Bill Ackman Bails on Netflix
Posted on 04/21/2022
Hedge fund Bill Ackman who runs Pershing Square Capital Management, L.P. has had successes in many stocks and is picked up by media on his market calls. In late January 2022, Bill Ackman saw Netflix’s stock price plunge as a US$ 1.1 billion buying opportunity. In January, Ackman had bought 3.1 million shares of Netflix. Ackman quickly became one of Netflix’s largest shareholders. Netflix is known as a FANG stock (Facebook, Apple, Netflix, Google).
Earnings
However, Netflix released its financial figures after its first quarter 2022 earnings report. Netflix revealed it had lost 200,000 subscribers in the first three months of 2022 and expects to lose 2 million more this quarter. Netflix lost subscribers for the first time in more than a decade. Netflix has 221.6 million global subscriptions. Netflix blamed many factors for its subscriber exodus, including competition and widespread password sharing.
Pershing Square (Bill Ackman) sold its Netflix shares after the news came out. It is estimated he lost more than US$ 430 million in less than three months.
In Ackman’s letter to his shareholders, he wrote, “Today, we sold our investment in Netflix, which we purchased earlier this year. The loss on our investment reduced the Pershing Square Funds’ year-to-date returns by four percentage points. Reflecting this loss, as of today’s close, the Pershing Square Funds are down approximately two percent year-to-date.
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. In our original analysis, we viewed this operating leverage favorably due to our long-term growth expectations for the company.
Yesterday, in response to continued disappointing customer subscriber growth, Netflix announced that it would modify its subscription-only model to be more aggressive in going after non-paying customers, and to incorporate advertising, an approach that management estimates would take “one to two years” to implement. While we believe these business model changes are sensible, it is extremely difficult to predict their impact on the company’s long-term subscriber growth, future revenues, operating margins, and capital intensity.”
The share price of Netflix closed at US$ 690.31 at October 29, 2021. Shares of Netflix moved past US$ 700 to a record on November 19, 2021. The price on January 26, 2022 closed at US$ 359.70. Netflix’s April 20, 2022 price close is US$ 226.19.
Keywords: Netflix, Inc.
