by Ackman’s hedge fund, Pershing Square Capital Management, made an abrupt turnaround, 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 more than $1 billion into the streaming service just days after a disappointing subscription forecast lowered its share price. Now, a second wave of negative subscriber news – the company said it had lost 200,000 – has led the fund manager to turn his back on a company he had praised just weeks earlier.
In a brief statement announcing the change, Ackman said the proposed changes to the business model, including incorporating advertising and targeting delinquent customers, make 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 waiting for things to improve at Netflix, Ackman has blocked losses estimated at more than $400 million, people familiar with the portfolio said. After the sale, Pershing Square’s portfolios were down about 2% for the year, Ackman said.
Profitable hedges helped Pershing Square survive the early days of the pandemic in 2020 and again in recent months as interest rates began to rise. The past three years have been among the best in the hedge fund’s life, including a 70.2% gain in 2020.
But Ackman also acknowledged in his statement on Wednesday that he learned from the hardest times, when his fund backed Valeant Pharmaceuticals, a disastrous gamble that cost the hedge fund billions in losses.
“One of our lessons from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That’s why we did it here,” he wrote.
