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Hedge Fund U-turn as Netflix drops $50bn+

April 21, 2022

Billionaire hedge funder Bill Ackman has sold his stake in Netflix at a loss of about $400 million (€367.1m), reversing his bullish position in the streaming giant.

The New York investor bought more than $1 billion of Netflix stock in January, betting against the downward consensus forecasts on the company’s subscription levels. Ackman said at the time that the subsequent drop in the share price had presented an “attractive” opportunity for his Pershing Square fund.

On April 20th, shares in the streamer plunged more than 35 per cent on news that Netflix had lost more than 200,000 subscribers in Q1 and was likely to lose a further two million over the next quarter. The share drop wiped over $50 billion off of Netflix’s market value.

Ackman’s offload is estimated to have cost him $400 million loss in the Pershing fund. In a letter to investors, Ackman admitted that the losses had knocked returns by four percentage points.

“One of our learnings from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That is why we did so here,” Ackman told investors.

“While we have a high regard for Netflix’s management and the remarkable company they have built, in light of the enormous operating leverage inherent in the company’s business model, changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value,” Ackman added.

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