Legendary investor Bill Ackman is once again betting on streaming giant Netflix Inc (NASDAQ:NFLX). The stock was added to the Pershing Square Capital investment portfolio in the second quarter with Ackman hoping for a different outcome than the last time he bought shares.
Ackman Buys and Sells Netflix Stock in 2022
Ackman’s hedge fund acquired 3.1 million shares in Netflix for more than $1 billion in January 2022.
In a letter to shareholders at the time, Ackman said Netflix was a winner in the shift from linear TV to streaming.
“It’s subscription-based, highly recurring revenues, which have enormous future growth potential,” Ackman said. Netflix has “industry-leading content,” which gives it a competitive moat and pricing power over rival streaming services, he added.
The Pershing Square CEO also highlighted a growing global subscriber base and room for expansion.
Several months later, a poor earnings report from Netflix and uncertainty around the streamer’s push into future ad-supported subscription plans spooked Ackman.
The investor cashed out of part of the position and later fully exited from the investment by April 2022, taking a loss of around $400 million.
“Changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value.”
Ackman said a hybrid approach of paid and ad-supported plans could be “sensible,” but would make it tough to predict subscriber growth, future revenues and operating margins.
Ackman said the hedge fund had lost confidence in predicting Netflix’s future with certainty.
Missed Profits
At the time of Ackman’s sell, Netflix stock traded at around $225. While this was down from purchase prices in the $350- $410 range, the stock continued to decline following Ackman’s sale.
With Netflix stock trading down to $175 later in 2022, Ackman’s exit looked like the right decision.
Over a year later, Netflix stock climbed back up to Ackman’s cost basis and continued to rise.
Today, Netflix trades at $77.13, or $771.30 not adjusted for a 10-for-1 stock split that happened in 2025 after Ackman’s transactions.
Ackman’s original 3.1 million share purchase would be 31 million shares today, adjusted for the stock split. Those shares would be worth $2,391,030,000 today.
Ackman announced the Netflix stake on Jan. 26, 2022, saying the hedge fund had been acquiring shares since Jan. 21, 2022. Netflix stock traded between $351.46 and $409.15 over that six-day period.
Based on the highest price, Ackman paid up to $1,268,365,000 for 3.1 million shares.
That means Ackman missed out on potential profits of $1,268,365,000 by selling Netflix stock early.
To put this another way, an investor who bought $1,000 in Netflix stock on the day it was revealed that Ackman had sold could have bought 4.02 shares at a price of $248.70. The stake would now be 40.20 NFLX shares. That investment would be worth $3,100.63 today, up 210.0%.
Ackman on Netflix
Netflix no longer provides quarterly streaming subscriber figures, a key metric that Ackman will have to live without. The absence of this figure could make predicting future quarters more difficult.
The streaming giant has focused on growth through its ad-supported plan, which includes new bets on live streaming like major league sports rights.
“Netflix has since effectively won the streaming wars,” Pershing Square said in an investment letter.
The Ackman-led hedge fund said Netflix stock trades at a cheap valuation, with the current multiple representing a substantial discount.
“We expect Netflix to compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue driving continued margin expansion.”
Portions of this article was previously published by Benzinga and have been updated.
Image via Shutterstock
Login to comment