The billionaire hedge fund manager Bill Ackman has sold his shares in Netflix at a loss of about $400m (£305m), reversing his bullish position in the streaming giant after it reported an outflow of more than 200,000 subscribers.
The New York-based investor bought more than $1bn of Netflix shares in January, despite grim forecasts about the company’s subscription levels. Ackman said at the time that the subsequent drop in the share price had presented an “attractive” opportunity for his Pershing Square fund.
But Ackman made a U-turn overnight after shares in the online streaming platform plunged more than 35% in reaction to news that Netflix had lost more than 200,000 subscribers in the first three months of the year and was likely to lose a further 2 million over the next quarter, as customers reviewed subscriptions bought at the height of Covid lockdowns.
The share drop wiped about $50bn off of Netflix’s market value.
Ackman’s decision to offload the stake is estimated to have resulted in a $400m loss for the Pershing fund. In a letter to investors, Ackman conceded that the losses had knocked returns by four percentage points.
“One of our learnings 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 so here,” Ackman told investors.
“While we have a high regard for Netflix’s management and the remarkable company they have built, in light of the enormous operating leverage inherent in the company’s business model, changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value ,” Ackman added.
The hedge fund manager acknowledged that Netflix had a strategy to stem the losses, including by going after non-paying customers more aggressively and incorporating advertising into its streaming service. However, he noted that the changes could take at least one to two years to implement.
“While we believe these business model changes are sensitive, it is extremely difficult to predict their impact on the company’s long-term subscriber growth, future revenues, operating margins, and capital intensity,” Ackman said.
Russ Mold, investment director at AJ Bell, said the strategy amounted to “radical changes” at the streaming service. “It will be interesting to see how its biggest shareholders view its chances of executing them with any success or whether it’s back to the drawing board with fresh thinking and potentially fresh leadership.”