Celebrity billionaire loses $430 mn as Netflix valuation erases an entire State Bank of India in m-cap

Nearly three months after buying Netflix stocks worth $1.1 billion, Bill Ackman has sold his stake in the online streaming service with a loss of more than $430 million.

Bill Ackman
At the time of his investment in stock, Ackman had said that he greatly admired Netflix both as a consumer and as an investor. (Image: REUTERS)

Nearly three months after buying Netflix stocks worth $1.1 billion, Bill Ackman has sold his stake in the online streaming service with a loss of more than $430 million. Bill Ackman had purchased around 3.1 million shares of Netflix for his Pershing Square Capital fund in January, making the fund a top-20 shareholder in the company. Netflix’s share price has tanked drastically in the last few days after the company reported its first-ever loss of subscribers in a decade. The streaming company’s market value has tanked by $60 billion in 2 days (equivalent of SBI’s entire market capitalisation in Indian rupees) as the stock plummeted by more than 35%.

No Netflix and Chill for Ackman

“Today, we sold our investment in Netflix, which we purchased earlier this year,” Bill Ackman wrote in a letter to investors yesterday. He added that the loss on their investment in Netflix reduced the Pershing Square Funds’ year-to-date returns by four percentage points. Bill Ackman had purchased Netflix shares when the stock fell during the last few days of January and was trading around $359 per share.

At the time of his investment in stock, Ackman had said that he greatly admired Netflix both as a consumer and as an investor. “Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon,” Bill Ackman had written in a letter to investors while acquiring Netflix shares. He had further praised Netflix’s highly recurring revenues, pricing power, and improving free cash flow among other things. Pershing Square Capital manages roughly around $21 billion in funds. 

Announcing his departure from Netflix Bill Ackman said, “While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty. Netflix has announced a would modify its subscription-only model to be more aggressive in going after non-paying customers, and to incorporate advertising.

JP Morgan downgrades Netflix

Further, to augment the pain of Netflix stock, JP Morgan analysts downgraded the stock from overweight to neutral. “Following a sea change quarter for Netflix in which the company essentially conceded to every key point of the bear thesis, we’re downgrading our recommendation to Neutral & lowering our price target to $300,” analysts wrote in a note. JP Morgan earlier had a December 2022 target of $605 on Netflix. JP Morgan added that there’s not much to get excited about over the next few months. 

Netflix has been bearing the brunt of account sharing among users, limiting its monetisation power. Although the company is attempting to monetise account sharing JP Morgan has not built that into its model. “We’re moving to the sidelines as we look for greater confidence in restoring subscriber growth & reaccelerating revenue, while also increasing development velocity in account sharing & advertising,” JP Morgan wrote in the note.

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