William Ackman, a billionaire investor in streaming services platform Netflix, liquidated a USD1.1 billion investment in the company on Wednesday. The move saw Ackman sustain a loss of approximately USD400 million, after Netflix shares plunged following a report that it had lost subscribers for the first time in a decade of operations.
Bill Ackman’s hedge fund, Pershing Square Capital Management sold 3.1 million shares it had purchased just three months ago as Netflix’s shares dropped by almost 35 percent.
In January of this year, Bill Ackman had channelised over USD1 billion into Netflix, the streaming service provider. This was just days after a disappointing forecast for subscriptions pushed share prices down. After a second round of bad news – about loss of subscribers with the company saying it had lost over 200,000, the fund manager was forced to turn his back on the company for which he was all praise just weeks ago.
Future prospects of Netflix unpredictable
After announcing the move, Ackman said in a brief statement that proposed business model changes, including advertising and securing non-paying customers, would make the company very unpredictable in the short term. He also said that while Netflix’s business model is fundamentally simple to understand, his company had lost confidence in their ability to predict Netflix’s future prospects with any degree of certainty.
Ackman went on to say that Pershing Square (which invests USD21.5 billion) only buys shares in a dozen companies at a time, and required a high level of predictability in its portfolio companies.
Sources familiar with the portfolio said that Ackman preferred to lock in the USD400 million loss than to wait for the financial situation at Netflix to turn around. After the sale of shares, Pershing Square’s portfolio is off by approximately two percent for the year, said Ackamn in a statement.
After modest predictions that it would add 2.5 million subscribers, Netflix announced that it had lost 200,000 subscribers in its first quarter, falling very short of the prediction. In early March, Netflix suspended services in Russia after it invaded Ukraine, and this resulted in a loss of more than 700,000 subscribers.
Profitable hedges enabled Pershing Square to survive the early days of the pandemic in 2020, and again in recent months when interest rates started to rise. The years since 2019 have been the best in the lifetime of the hedge fund, which included a 70.2 percent gain in 2020.
Bill Ackman, in his statement on Wednesday acknowledged that he had learned from hard times when his fund backed Valeant Pharmaceuticals, which cost the hedge fund billions of dollars in losses.
He also said that one of the company’s learnings from past mistakes was to act promptly when new information is discovered about an investment that is inconsistent with its original thesis.