Back in late January, hedge fund manager Bill Ackman saw Netflix’s stock price plunge as a $1.1 billion buying opportunity. So Wednesday’s nosedive, with the stock falling 38% in early hours, raises the question: Is he hunkering down or doubling down?
Whatever Ackman’s doing, he certainly took a substantial hit following the company’s first-quarter earnings report, when Netflix revealed it had lost 200,000 subscribers in the first three months of the year and expects to lose 2 million more this quarter.
Exactly how big a hit he took is a nebulous number. When Ackman revealed the purchase, he didn’t say what he paid. But he did note that he’d bought more than 3.1 million shares between Jan. 21 and Jan. 26, when the stock was in the $351.46 to $409.14 range.
Assuming the best-case scenario for his purchase, buying all of those shares at the low end of the range would still represent a loss for Ackman of nearly $415 million in less than 24 hours.
Who is Bill Ackman?
Ackman is no stranger to volatility. In 2017, his investment in Chipotle bombed, only to rebound, then triple in price. And through his hedge bets at the start of the pandemic, he turned $27 million into $2.6 billion.
The founder and CEO of the hedge fund Pershing Square Capital Management made his reputation as an activist investor. He’s often publicly courted his investments (which isn’t always welcome), and his New York–based firm is known for taking stakes in companies and pressuring their leaders to make changes or face proxy fights.
In early 2015, he made an ill-fated bet on Valeant Pharmaceuticals International, which resulted in two years of double-digit portfolio losses for his hedge fund firm. Investors then began pulling out of Pershing Square.
He has also courted controversy outside of the business world, tweeting in 2021 that he believed Kyle Rittenhouse to be a “civic-minded patriot” and that the 18-year-old had acted in self-defense when he killed two unarmed protesters and wounded a third.
A buying opportunity?
Ackman bought Netflix on a dip once and could see this as an opportunity to expand his stake in the company.
In announcing the initial purchase, he told investors in Pershing Square, “The opportunity to acquire Netflix at an attractive valuation emerged when investors reacted negatively to the recent quarter’s subscriber growth and management’s short-term guidance.”
And in a tweet at the time, he added, “I have long admired Reed Hastings and the remarkable company he and his team have built. We are delighted that the market has presented us with this opportunity.”
Correction: An earlier version of this story said that Ackman made the Netflix purchase a month ago. It has been changed.
This story was originally featured on Fortune.com
(Reuters) -Billionaire investor William Ackman liquidated a $1.1 billion bet on Netflix on Wednesday, locking in a loss of more than $400 million as the streaming service’s stock plunged following news that it lost subscribers for the first time in a decade.
Ackman’s hedge fund Pershing Square Capital Management made an abrupt U-turn, selling the 3.1 million shares it had bought just three months ago as Netflix’ shares tumbled 35% to $226.19.
In January, the investor funneled over $1 billion into the streaming service just days after a disappointing forecast for subscriptions pushed the share price lower. Now a second bout of negative news about subscribers – the company said it had lost 200,000 – prompted the fund manager to turn his back on a company he had showered with praise only weeks before.
In a brief statement announcing the move, Ackman said proposed business model changes, including incorporating advertising and going after non-paying customers, made sense but would make the company too unpredictable in the short term.
“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,” he wrote.
Pershing Square, which now invests $21.5 billion, buys shares in only about a dozen companies at a time and needs a “high degree of predictability” in its portfolio companies, Ackman said.
Rather than wait around for things to improve at Netflix, Ackman locked in losses that are calculated to be more than $400 million, people familiar with the portfolio said. After the sale, Pershing Square’s portfolios are off roughly two percent for the year, Ackman said.
Netflix said it had lost 200,000 subscribers in its first quarter, falling well short of its modest predictions that it would add 2.5 million subscribers. Its decision in early March to suspend service in Russia after it invaded Ukraine resulted in the loss of 700,000 members.
Profitable hedges helped Pershing Square survive the early days of the pandemic in 2020 and then again in recent months as interest rates began to rise. The last three years have been among the best in the hedge fund’s lifetime, including a 70.2% gain in 2020.
But Ackman also acknowledged in his statement on Wednesday that he had learned from leaner times when his fund backed Valeant Pharmaceuticals, a disastrous bet that cost the hedge fund billions in losses.
“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.
(Reporting by Svea Herbst-Bayliss with additional reporting by Tiyashi Datta in Bengaluru; Editing by Sriraj Kalluvila, Bernard Orr)
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