Ackman’s hedge fund Pershing Square Capital Management took an abrupt turn, selling the 3.1 million shares it bought just three months ago as Netflix shares fell 35% to $226.19.
In January, the investor poured over $1 billion into the streaming service just days after a disappointing subscription forecast pushed its share price down. Now, a second bad news about subscribers – the company said it lost 200,000 – prompted the fund manager to turn his back on a company he had been heaping praise on just weeks earlier.
In a brief statement announcing the move, Ackman said the proposed business model changes, including the inclusion of advertising and serving non-paying customers, made sense but would make the company too unpredictable in the short term.
“While Netflix’s business is fundamentally easy to understand, in the light of recent events we have lost confidence in our ability to predict with reasonable certainty the future prospects of the company,” he wrote.
Pershing Square, which now invests $21.5 billion, only buys shares in 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 racked up losses estimated at more than $400 million, people familiar with the portfolio said. After the sale, Pershing Square’s portfolios are down about 2% for the year, Ackman said.
Netflix (NFLX) said it lost 200,000 subscribers in the first quarter, falling well short of its modest projections that it would add 2.5 million subscribers. Her decision in early March to end service in Russia after invading Ukraine resulted in the loss of 700,000 members.
Profitable hedging helped Pershing Square weather the early days of the pandemic in 2020, and then again in recent months as interest rates began to rise. The past three years have been among the hedge fund’s best on record, including a 70.2% gain in 2020.
But Ackman also acknowledged in his statement Wednesday that he had learned from lean times when his fund backed Valeant Pharmaceuticals, a disastrous bet that cost hedge funds billions of dollars in losses.
“One of the lessons we have learned from past mistakes is to act immediately when we discover new information about an investment that doesn’t align with our original thesis. That’s why we did this,” he wrote.