Bill Ackman's Pershing Square built a new stake in Netflix worth about $1 billion earlier this year, four years after selling out of the stock at a loss. Ackman says the thesis that drove him out in 2022 has now played out in Netflix's favor.
Bill Ackman's Pershing Square took a new position in Netflix worth about $1 billion earlier this year. It marks his second run at the stock after a costly exit more than four years ago.
A costly exit in 2022
In early 2022, Ackman put about $1.25 billion of Pershing Square's capital into Netflix, betting on the streaming leader's competitive advantages and earnings growth. Just a few weeks later, he sold the entire position, taking a significant loss.
The reversal followed Netflix's first-quarter earnings that year, when the company disappointed investors again and announced plans for an ad-supported tier. Ackman valued the simplicity of Netflix's subscription-only model, and the shift toward advertising made the business harder to predict for his concentrated portfolio.
Ackman's thesis plays out
More than four years later, Ackman wrote in his August shareholder letter that "Netflix has since effectively won the streaming wars." Its scale now vastly exceeds that of its closest competitors, and its push into advertising has let it expand into live programming, a key driver of new subscriptions.
Free cash flow has since ballooned to approximately 90% of earnings, funding the buybacks Ackman expected when he first bought the stock. Earnings per share have compounded by 27% since the end of the first quarter of 2022, close to the more than 20% annual growth Ackman originally projected.
After Netflix's valuation sank back to levels last seen in 2022, Ackman took the opportunity to buy shares again, this time with greater confidence in the advertising business.
Source: Motley Fool
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