Fund manager Bill Ackman’s Pershing Square sells Netflix stake; “We have lost faith in our ability to predict future prospects”

Bill Ackman’s Pershing Square Holdings, which bought Netflix stock in January after a drop in stock prices, said he sold the stock today because he had “lost faith in his ability to predict the company’s future prospects fairly well.” I’m sure. “

Pershing’s portfolio “requires a high degree of predictability in the activities we invest in,” Ackman said in a letter to shareholders. The company bought over 3.1 million shares to become the top 20 shareholders.

Read the letter in its entirety below.

Losses as a result of its investments in Streamer reduced the fund’s income by four percentage points on a daily basis.

Shares of Netflix were down 35% today as investors attacked a weaker-than-expected quarterly report and a forecast on Tuesday that showed a slowdown in subscriber growth and an immediate correction. The streaming leader’s troubles could have a ripple effect across the industry.

Netflix lost 200,000 subscribers in the first quarter and is expected to decline by 2 million this quarter, citing numerous obstacles from macro factors to the spread of Smart TV to 100 million free downloads sharing other people’s passwords.

The company stops sharing passwords and, to a large extent, starts advertising itself at the same level that most of its competitors do or plan to do. This will reduce costs and diversify the revenue base, but the implementation will take several years.

Akman’s letter:

Dear Pershing Square Investor:

Today we sold our investment in Netflix, which we acquired earlier this year. Our investment loss reduced Pershing Square Funds’ annual income by four percentage points. Reflecting this loss, Pershing Square Funds is down around 2% on a daily basis as of today’s close.

While we have great respect for running Netflix and the amazing company they have built, given the enormous operational leverage inherent in the company’s business model, changes in the company’s future subscriber growth can have a huge impact on the company’s business. our estimated national value. In our initial analysis, we positively viewed this operating leverage due to our long-term growth expectations for the company.

Yesterday, in response to the increasingly frustrating growth in customer subscribers, Netflix announced that it would only change its subscription model to be more aggressive in tracking paying customers and serving ads, an approach that managing estimates will require. ” one by two “. Years “to implement. While we believe these business model changes are reasonable, it is very difficult to predict their impact on the company’s long-term customer growth, future revenue, operating margin and capital intensity.

We need a high degree of predictability in the activities we invest in due to the highly concentrated nature of our portfolio. While Netflix’s business is fundamentally simple, given recent events, we’ve lost faith in our ability to predict the company’s future prospects fairly well. Based on management experience, it’s no surprise that Netflix remains a very successful company and a great investment based on its current market value. That said, we believe the profit dispersion has widened enough to make it difficult for a company to meet our requirements for a large holding.

One of the mistakes of the past is that we learn to act in a timely manner when we discover new investment information that is not consistent with our original thesis. That’s why we did it here.

We are in a capacity-rich environment in Pershing Square due to the dramatic change in Federal Reserve policy, high inflation, geopolitical uncertainty and the resulting high degree of stock price volatility. Therefore, we hope to find good use of Netflix revenue. Please feel free to contact the Investor Relations team if you have any questions regarding the above. We are grateful for your long-term support and cooperation.

To be honest,
William A. Akman