Inside Bill Ackman’s Big Netflix Buy

The contrarian hedge fund manager makes a bold bet on a beaten-down tech highflyer.

Michael Nagle/Bloomberg

Michael Nagle/Bloomberg

When the Dow Jones Industrial Average goes from down 900 points to up 100 in a single afternoon, just who is buying the dip?

Pershing Square Capital CEO Bill Ackman, for one.

On Wednesday after the close, Ackman sent a letter to investors in his hedge fund saying he had bought more than 3.1 million shares of Netflix, the video streaming pioneer whose stock had seen such vast reversals in recent days that it had been trading at June 2018 levels.

At Netflix’s current price of about $390 per share, the purchase gives Ackman a stake worth more than $1 billion — and makes him one of Netflix’s top 20 shareholders.

“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 explained in the letter.

Netflix’s big drop came on January 20, when it fell 20 percent after the market closed following an earnings release in which the company said it expected subscriber growth to slow. Netflix has been one of the winners of the stay-at-home Covid world, but it has also faced more competition from companies including Amazon Prime Video — which recently introduced videos with advertising content — Hulu, Disney Plus, and HBO Max.


Netflix has raised prices, but it still faces slowing growth in the U.S. and Canadian market.

That doesn’t worry Ackman, who lauded “a truly best-in-class management team and unique high-performance culture” that allowed Netflix to pivot from DVD rentals by mail to become “one of the greatest producers of beloved content ever.”

He said Pershing Square is “all in on streaming” after it began to explore the space with its purchase of Universal Music Group. In his Universal presentation last summer, however, he lauded music as “a better streaming business than video.”

Ackman relishes being a contrarian. He famously made $2.6 billion on a Covid-19 short bet that paid off just before the market tanked in 2020. And last year, before anyone was uttering the word inflation, he put on an interest rate hedge that had earned him about $1 billion by November.

“We believed that an unexpected rise in rates could cause a market correction,” he told investors in the letter. As of Wednesday afternoon, the S&P 500 index was off 9 percent from its highs, and the Nasdaq, where many tech high flyers trade, was down 14 percent. (In contrast, Netflix was up almost 9 percent.)

Ackman declined to comment on where he thought the market would go from here.

But last year he asked the Federal Reserve Board to raise rates sooner rather than later, and he recently called for a 50-basis point hike.

To fund the Netflix buy, on Jan. 21 Pershing Square began unwinding the substantial majority of the interest rate hedge, which Ackman said generated proceeds of $1.25 billion. Although the fund kept some interest rate swaptions — or swap options — that are out of the money, and purchased some longer-dated ones, he said the notional size of the hedge has been reduced by 80 percent.

Ackman acknowledged that Pershing Square likely could make more money on its interest rate hedge, as rates are continuing to rise. But he 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.”

As of Tuesday, Ackman’s hedge fund was down almost 14 percent for the year.