Seeking to capitalize on a steep sell-off in Netflix Inc. (NFLX, Financial) over the past several months, Pershing Square Capital leader Bill Ackman (Trades, Portfolio) revealed a stake in the streaming giant earlier this week.
In a letter to shareholders released on Wednesday, the billionaire activist investor said the New York-based hedge fund has invested in 3.1 million shares of Netflix since last Friday, making it one of the top 20 shareholders of the company.
The total value of the stake is roughly $1.1 billion based on current share prices.
While the Los Gatos, California-based company has seen its shares soar over the past decade as it pioneered a streaming service that upended the traditional viewing experience, competing platforms from Disney (DIS, Financial), Comcast (CMCSA, Financial) and ViacomCBS (VIAC, Financial), among others, have slowly started to encroach on its subscriber growth.
Netflix’s stock has tumbled more than 40% from its intraday high of $700.99 per share reached in November.
Last week, the stock declined another 20% after the company warned subscriber growth would slow substantially in the first three months of 2022 and provided disappointing guidance. While Pershing Square had been actively analyzing Netflix in connection to its investment in Universal Music Group (XAMS:UMG, Financial), Ackman noted in his letter it was this decline that led to finally pulling the trigger.
“Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon,” he wrote.
Ackman acknowledged the scale of the streaming business, which has the potential to attract subscribers and charge them higher prices, was part of what initially attracted him to Netflix. He also pointed to its large pipeline of content, which could help fend off competition and boost margins.
“Netflix is a primary beneficiary of the growth in streaming and the decline in linear TV driven by its superior customer experience, a vast and diverse amount of superb, constantly refreshed content, global improvements in bandwidth, and the proliferation and continuous improvement and convenience of devices on which one can watch,” Ackman wrote.
In order to fund the purchase, the guru disclosed the firm unwound the “substantial majority” of its interest rate hedge, generating proceeds of $1.25 billion.
“Had we not sold the hedge, we could have likely realized more gains based on the increase in rates, largely today, since our sale,” Ackman said. “That said, we believed the opportunity to invest in Netflix at current prices offered a more compelling risk-reward and likely greater, long-term profits for the funds.”
With a $170.15 billion market cap, Netflix shares were trading 7.7% higher on Thursday at $387.46.
Other gurus who also have notable investments in the company include Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Chase Coleman (Trades, Portfolio).
Overview of Ackman’s holdings
Pershing Square’s fourth-quarter 2021 equity portfolio has not yet been released since it has 45 days after the period ends to file with the Securities and Exchange Commission. Known for its activist investments, the hedge fund takes large positions in a handful of underperforming companies and works with management in order to unlock value for shareholders.
Over 80% of Ackman’s $9.46 billion equity portfolio, which consisted of six stocks as of Sept. 30, was invested in the consumer cyclical sector, while the real estate space represented 12.64%.
As of the end of the third quarter, Ackman had positions in Lowe’s Companies Inc. (LOW, Financial), Chipotle Mexican Grill Inc. (CMG, Financial), Hilton Worldwide Holdings Inc. (HLT, Financial), Restaurant Brands International Inc. (QSR, Financial), The Howard Hughes Corp. (HHC, Financial) and Domino’s Pizza Inc. (DPZ, Financial).
