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Pershing Square Capital Management founder Bill Ackman told shareholders Wednesday that his firm has been scooping up shares in streaming giant Netflix, making his firm one of the top 20 shareholders in the company. Ackman said that his firm has purchased 3.1 million Netflix shares so far, which would be worth more than $1.1 billion, as of this writing.
While Ackman is known as an activist investor (he famously succeeded in convincing fast-food giant Wendy’s to spin off donut and coffee chain Tim Horton’s), the Netflix buying spree appears to be value-based.
“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. Netflix’s substantial stock price decline was further exacerbated by recent market volatility,” Ackman wrote in his letter. “We are pleased to add Netflix to our portfolio. 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.”
Ackman has mostly stayed away from Hollywood-adjacent businesses, though his SPAC Pershing Square Tontine announced — and ultimately dropped — a deal to acquire a 10 percent stake in Universal Music Group last year. Instead, Ackman’s main fund Pershing Square Capital Management acquired the stake itself, leaving the SPAC to look for another partner.
“We began analyzing Netflix in connection with our investment in Universal Music Group, so we were prepared when the stock price declined sharply last Friday,” Ackman wrote. “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 organizations.”
As the largest music publisher, UMG derives significant cash flows from streaming services like Spotify, Apple Music and Amazon Music, as well as from platforms like YouTube and TikTok.
Ackman said that the Netflix purchase was funded with $1.25 billion in proceeds from an interest rate hedge (Ackman is known for these types of hedges, having made what writer Bill Cohan called “the greatest trade of all-time” in 2020: turning a $27 million hedge bet against the stock market into a $2.6 billion profit in March 2020 when the market crashed in the early days of the pandemic).
“Had we not sold the hedge, we could have likely realized more gains based on the increase in rates, largely today, since our sale,” Ackman wrote. “That said, we believed the opportunity to invest in Netflix at current prices offered a more compelling risk/reward and likely greater, long-term profits for the funds.”
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