The Bull Case for Netflix

Bill Ackman
Bill Ackman, founder and C.E.O. of Pershing Square Capital Management. Photo: Bryan Bedder/Getty Images
William D. Cohan
July 6, 2022

Back in April, the jack-of-all-trades billionaire hedge fund manager Bill Ackman bailed out of Netflix, just three months after purchasing some 3.1 million shares of the company, worth around $1.1 billion, and forcing him to digest a loss of around $400 million. Only months earlier, in a letter to his hedge fund investors, Ackman had enumerated the various reasons why the firm 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.” 

At the time, the news that Ackman was already dumping his Netflix shares was stunning. Among other things, Ackman has always been a proponent of taking a long-term perspective, much like his investing hero, Warren Buffett. (In fact, two of his fund’s most infamous bets, Herbalife and Valeant Pharmaceuticals, hewed to this timeline, with disastrous results.) In his letter laying out the bull case for Netflix, Ackman had written that he loved the business of streaming content, having previously bought a big stake in the Universal Music Group, a digital music content company, which provided him a lot of proximate exposure to the fine details of streaming economics. He praised the Netflix management, its business model of recurring revenues, its pricing power and its high EBITDA margins. He also lauded the “superb quality” of Netflix’s “industry-leading content,” which he wrote should continue to lead to higher growth and a wider “moat” around the business, despite the recent market correction.

Three months later, of course, his thesis was down the drain. Netflix reported slowing subscriber growth in the first four months of 2022, and warned investors that it might lose around 1 percent of its 220 million global subscribers in the second quarter. That would mark the first time in a decade that the company’s subscriber growth retreated. Netflix also said that it would consider adding a lower-priced, ad-supported tier—voiding its founders’ long-held arguments against advertising of any kind—and that it would start cracking down on password sharing. The company’s stock got clobbered and Ackman was down $400 million.