Pershing Square Hedge Fund Purchases 3.1 Million Netflix Shares Following Streamer’s Massive Stock Drop

Topline

William Ackman, founder and CEO of the hedge fund management company Pershing Square Capital Management, announced Tuesday that the company purchased 3.1 million shares of Netflix following the stock’s plunge last week in response to a disappointing earnings report.

Billionaire investor William Ackman, whose hedge fund holds a large stake in Valeant and controls … [+] two seats on its board of directors, testifies on Capitol Hill in Washington, Wednesday, April 27, 2016, before a Senate Specials Committee on Aging hearing on drastic price hikes by Valeant and a handful of other drugmakers that have stoked outrage from patients, physicians and politicians nationwide. (AP Photo/Manuel Balce Ceneta)

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Key Facts

The purchase makes Pershing Square a top-20 shareholder in Netflix, according to a letter to its investors released Wednesday.

Pershing Square began purchasing shares last Friday after Netflix’s fourth-quarter earnings report revealed a continuing trend of declining subscriber growth.

The disappointing report caused a 30% dip in share price, off $148.55 to $$359.70 since Thursday.

Netflix stock is down 40.3% in 2022, surpassing Moderna as the S&P 500’s worst-performing stock of the year so far following the drop.

Netflix shares were up 4.9% in after-hours trading following Ackman’s announcement.

Ackman said in his letter to investors that Pershing Square funded the purchase using about $1.25 billion of proceeds accrued from its interest rate hedge.

Key Background

Netflix’s subscriber growth has slowed since its success early in the Covid-19 pandemic, during which it benefited from the increase in the number of people staying home. It reported a net increase of 8.28 million global streaming subscribers in its fourth quarter last Thursday, marking an 8.9% gain over the same quarter a year ago—far below its 21.9% year-to-year growth in the fourth quarter of 2020. Bloomberg reported Friday at least nine firms cut their recommendation of Netflix after the fourth-quarter report was released. In a report, Macquarie analyst Tim Nollen cited growing competition from services like Disney +, Amazon Prime and HBO Max are becoming a “bigger problem now.”

Crucial Quote

“We have greatly admired Netflix as consumers and investors,” Ackman wrote in the letter. He pointed to the streaming service’s “highly favorable characteristics,” such as its subscription based revenue (Netflix raised its subscription fees earlier this month), its “industry-leading content” (the record-breaking Squid Game was confirmed for a second season last week), its “substantial margin expansion” and its “improving free cash flow profile.”

Big Number

$3.1 billion. That’s how much Ackman is worth according to Forbes’ estimates, making him the 368th-richest American and the 1,111th-richest person in the world. He founded Pershing in 2004, and came to prominence with activist wins on Fortune Brands, Allergan and Canadian Pacific.

Source: https://www.forbes.com/sites/masonbissada/2022/01/26/pershing-square-hedge-fund-purchases-31-million-netflix-shares-following-streamers-massive-stock-drop/