Ackman's fund likely feeling the Netflix pain as shares plunge

Pershing Square Holdings

20/04/2022 01:13

By Svea Herbst-Bayliss
    BOSTON, April 19 (Reuters) - Three months ago hedge fund
manager William 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 Tuesday, the billionaire investor's hedge fund, Pershing
Square Capital Management, was likely nursing losses as Netflix
shares tumbled 26% in after-hours trading after the company
reported losing subscribers for the first time in 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, while unwelcome, may not be entirely
unexpected as he had warned his investors earlier this year that
Netflix would face "near-term variability" in quarterly growth
and profitability. Long term, however, he said he expects to 
see double-digit annual revenue, expanded operating profit
margins, and earnings per share growth of more than 20% a year.
    A Pershing Square spokesman declined to comment.
    The Pershing Square Holdings fund was already nursing small
losses through the end of March before Netflix shares dropped on
Tuesday, which likely pulled returns down even more. 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 assets now total $21.5 billion, including
permanent capital in which would-be sellers can exit only if
there are new buyers. This allows Ackman to worry less about
potentially jittery investors wanting out and having to sell
positions to meet redemptions.
    Ackman has weathered big slides before, including when
shares in fast-food chain Chipotle  CMG.N  cost his fund some
$145 million in value in late October 2017. He joked in an
interview with Reuters at the time that his investment team
would be eating Chipotle until the stock price returned to $500
a share. On Tuesday Chipotle closed at $1,632.03

        

 (Reporting by Svea Herbst-Bayliss; Editing by Leslie Adler)
 ((svea.herbst@thomsonreuters.com; +617 856 4331; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))