Bill Ackman, the founder of Pershing Square Capital Management, who bought $1.1 billion worth of Netflix stock less than three months ago, has sold his entire stake in the company at a huge loss, the activist investor revealed announced on Wednesday.
“While we greatly appreciate Netflix’s management and the remarkable company they have built, given the tremendous operational leverage inherent in the company’s business model, changes in the company’s future subscriber growth may have an outsized impact on our estimate of intrinsic value.” ‘ Ackman wrote in a letter to Pershing shareholders. “In our original analysis, we rated this operational lever positively based on our long-term growth expectations for the company.”
The move is a reversal for Ackman, who made a major purchase in the company in January and praised Netflix in Pershing’s March 29 annual report as a company “well-positioned as a leading beneficiary of long-term long-term growth in streaming, a high-quality.” Company led by a world-class management team.” In the same report less than a month ago, Ackman added, “We believe Netflix’s current valuation represents a significant discount to intrinsic value for a company of its quality and exceptional growth potential represents.”
If Pershing bought 3.1 million shares of Netflix at the closing price of $359.70 per share on Jan. 26 for $1.1 billion when the company closed at $226.19 on Wednesday those shares are worth about $700 million.
The sale comes a day after Netflix announced it lost 200,000 subscribers in the most recent quarter, bringing its total global membership to 221.64 million. Even more worrying for Wall Street was the forecast that the streaming giant is likely to lose another 2 million subscribers in the next quarter. “I know it’s disappointing for investors, and it most certainly is,” co-CEO Reed Hastings told analysts on an April 19 earnings conference call. ”
As part of winning back investors, Netflix executives revealed plans not only to crack down on password sharing, but eventually to launch a cheaper, ad-supported tier of the service and continue its expansion into a video game streaming service. Wall Street wasn’t impressed, and Netflix stock fell a whopping 35 percent on Wednesday as several analysts downgraded its price target.
Ackman applauded Netflix’s efforts in his letter, but said holding the stock isn’t enough. “While Netflix’s business is fundamentally easy to understand, in light of recent events we have lost confidence in our ability to predict with reasonable certainty the future prospects of the company,” the activist investor wrote on Wednesday. “Based on management’s track record, we wouldn’t be surprised if Netflix continues to be a hugely successful company and an excellent investment given its current market value.”