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Bill Ackman’s Pershing Square Capital acquires 3.1 million shares of Netflix despite the stock losing more than 40% valuations in a month’s time.
After the market trading session on Wednesday, January 26, Pershing Square Capital Management announced buying a major stake in the video streaming platform Netflix Inc (NASDAQ: NFLX). The announcement comes despite the Netflix stock facing a 40% correction over the last month.
Pershing Square Capital’s Interest in Netflix
On Wednesday, NFLX stock was trading 1.83% down at $359 levels. However, post the announcement from Pershing Square, NFLX shares were up 3.83%. In a note to investors, Pershing Square’s Bill Ackman said that his firm has acquired 3.1 million NFLX shares worth a staggering $1.1 billion. He further added:
“Beginning on Friday and over the last several days, we acquired more than 3.1 million shares of Netflix, making us a top-20 shareholder in the company. 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”.
Ackman believes that the Netflix stock has just been a victim of extreme market volatility. Billman further added: “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.”
Netflix Has Highly Favorable Business Characteristics
Billman believes that Netflix has “highly favorable” business characteristics. He names some of the key positives like best-in-class management and high-performance culture, subscription-based, highly recurring revenues, “substantial” margin expansion, building a powerful competitive moat, etc.
To source its share purchase funds, Pershing Square Capital Management has been unwinding a large part of the “substantial majority” of its interest rate hedge. Ackman is very popular for these kinds of interest rate hedges. In March 2020, Ackman turned a $27 million hedge bet against the stock market into a $2.6 billion profit.
“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.”
Earlier this month, Netflix reported its Q4 2021 numbers with subscriber growth slowing considerably. Jefferies has also downgraded the stock citing some of Netflix’s recent decisions.