After less than 3 months, Bill Ackman of Pershing Square Capital Management is dumping his stake in Netflix, Bloomberg reports. The company decided to ditch its investment after the streaming service reported a large decline in subscribers in the first quarter and expects an even more substantial drop in the second quarter. Pershing Square lost more than $430 million on the investment, and after the announcement Netflix shares fell 35% to close at $226.19.
Ackman had bought the stock even after alarm bells began to sound over its subscriber base and became one of its 20 largest holders with a 3.1 million-share stake. Though Netflix peaked last November, more than doubling from the beginning of 2020, the stock is now down 62%, making it the worst performer in the S&P 500 this year. Still, when Ackman bought the stock, he told investors that ““the opportunity to acquire Netflix at an attractive valuation emerged when investors reacted negatively to the recent quarter’s subscriber growth and management’s short-term guidance” and pointed out the many attractive features Netflix still displays, such as its subscription-based model and a high-quality management team.
In disclosing the sale, Ackman also acknowledged that Pershing is down 2% overall this year, but said he’s learned from mistakes in his past to get out of bad bets as quickly as possible. Some of those past mistakes include a $4 billion loss on an ill-fated bet on Valiant Pharmaceuticals International and losing out on a short position in Herbalife Ltd. Ackman is also struggling to find a suitable target for the $4 billion his Pershing Square Tontine Holdings Ltd. raised in its initial public offering but has yet to finish a merger transaction, the article details. These bumps in Ackman’s road come after having back-to-back record years for returns in 2019 and 2020.
For its part, Netflix continues to seek out new ways to increase revenue after soaring so high in the last few years, including the possibility of switching to an ad-supported version and going after customers who share their passwords with people outside of their households, the article concludes.