Ackman's Pershing Square takes new position in Netflix

[BOSTON] Billionaire investor William Ackman has built a new stake in streaming service Netflix worth more than US$1 billion since its stock price tumbled starting Jan 20.

Ackman told investors that his hedge fund, Pershing Square Capital Management, started buying on Friday and now owns more than 3.1 million shares in Netflix, making Pershing Square a top 20 shareholder.

In a letter to his clients, Ackman praised the company's "best-in-class management team" and on Twitter the manager said he has long admired Netflix CEO Reed Hastings and the "remarkable company he and his team have built". Netflix shares climbed as much as 5 per cent in after-hours trading.

They had tumbled more than 30 per cent in the last 5 days, a much steeper swoom than the broader market. After the market closed last Thursday, Netflix forecast weak subscriber growth.

Ackman, whose firm invests US$22.5 billion, wrote that he had been analysing Netflix at the same time he was investing in Universal Music Group and was ready to buy when Netflix' "stock price declined sharply last Friday".

"Now with both UMG and Netflix, we are all-in on streaming as we love the business models, the industry contexts, and the management teams leading these remarkable organisations."

To raise the cash to make the Netflix purchase, Ackman said the firm unwound a big piece of its interest rate hedge which generated profits of US$1.25 billion.

He said that if he had not sold the hedge, his performance would have been better. His Pershing Square Holdings lost 13.8 per cent in the first 3 weeks January, the worst start to a year for the manager in years.

Last year Ackman posted a gain of 26.9 per cent after the fund surged 70.2 per cent in 2020.

Ackman said Netflix benefits from highly recurring revenues, adding the company has pricing power and delivers industry-leading content.

Pershing Square traditionally holds only a small number of investments which currently include Lowe's, Chipotle Mexican Grill and Dominos Pizza.

He said these companies are high quality businesses that can withstand inflationary pressures because they are able price their products to preserve profits.

Netflix' stock price surged during the pandemic as live performances were shut down and movie theatres were largely off limits.

The company has been a favourite with prominent investors before. Roughly a decade ago Carl Icahn, an activist investor like Ackman, took a 10 per cent position in Netflix and thought the company might need to sell itself to a technology company as its shares were undervalued.

Ackman, who has pushed other companies to perform better, appears to be approaching this investment as a friendly investor. "We are delighted that the market has presented us with this opportunity," he wrote on Twitter.

REUTERS