Billionaire investor sells Netflix stake after losing almost $600 million
Posted On April 25, 2022
Billionaire hedge fund investor Bill Ackman has told shareholders he has chosen to sell his fund’s investment in Netflix despite losing almost $600 million in three months.
Netflix’s stock has plummeted in recent days after an earnings report revealed 200,000 subscribers had left the streaming giant, marking the first-time subscriber numbers fell in more than a decade.
Mr Ackman’s Pershing Square Capital Management became one of Netflix’s largest shareholders in late January this year. Based off market disclosure at the time – and Netflix’s current stock price – it is estimated that Pershing Square lost around $US430 million ($596 million) on the deal.
In a letter to shareholders, Mr Ackman said while the hedge fund has “a high regard” for Netflix’s management they can no longer confidently predict the company will experience long-term growth.
“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,” Mr Ackman said.
“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.”
Mr Ackman said the fund “would not be surprised” to see Netflix become more successful, but had learnt with other investments that acting quickly was key.
“One of our learnings from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That is why we did so here,” he wrote.
“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.
“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.”
Last week Netflix’s stock dropped 30 per cent when the market opened on Wednesday, instantly wiping more than $60.54 billion off the value of the company.
Netflix said it shed 200,000 subscribers in the first three months of the year, when it had been expecting to add 2.5 million.
The streaming giant, whose stock had already dropped more than 40 per cent this year-to-date, blamed the attrition on increased competition for viewers and Russia’s invasion of Ukraine.
Netflix said its decision to pull out of Russia cost the company 700,000 subscribers.
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