Three months back when Bill Ackman cheered when Netflix’s stock price suddenly dropped, buying up 3 million shares as other investors fretted over weak subscriber growth at the streaming company.
On last Tuesday, the billionaire investor’s hedge fund, Pershing Square Capital Management, was bearing high losses as Netflix shares tumbled 26% within hours of trading after the company reported losing subscribers for the first time in past a decade.
Ackman, who routinely moves stock prices by buying into or exiting a company, did not say how much he paid for his Netflix stake, which he unveiled to his investors on Jan. 26. But he did say that he began acquiring the stake on Jan. 21, the day after Netflix’s announcement sent its stock plunging.
From Jan. 21 through Jan. 26, Netflix shares traded in a range of $351.46 to $409.14. The 26% drop in Netflix shares in after-hours trade on Tuesday, bringing them to $257.98, would imply a loss for Ackman’s fund on the Netflix investment of roughly 26% at the low end and a loss of 37% at the high end.
Before Netflix’s January outlook its stock had been trading around $500. Indeed, its shares had been dropping for months and Ackman called them “undervalued.”
For Ackman, the drop, may not be totally unexpected as he already had warned many of his investors earlier this year that Netflix would face “near-term variability” in quarterly growth and profitability. In Long term, however, he explained that he expects to see double-digit annual revenue for the company, expanded operating profit margins, and earnings per share growth of as high as 20% a year.
The Pershing Square Holdings fund was already facing various small losses around the end of March prior to Netflix’s shares drop on Tuesday, which likely pulled it’s returns even more towards the bottom. But these returns stand in stark contrast to three years of high double-digit gains for the fund that includes a 70.2% rise in 2020.
The firm’s total assets now value at an extreme capital of $21.5 billion, including permanent capital where sellers can exit only if there are new buyers otherwise it would not be possible. This things always allows Ackman not to worry about the potentially jittery investors wanting out and having to sell positions to meet redemptions.
Ackman has bagged many big deals in his past investments, including when shares in fast-food chain Chipotle cost his fund some $145 million in value in late October 2017. He joked in an interview that his investment team would be eating Chipotle until the stock price returned to $500 a share. On contrary Chipotle closed at $1,632.03 last Tuesday.
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