Bill Ackman pulls $1.1 billion out of Netflix after losing $400 million when share price cratered

Billionaire investor Bill Ackman has liquidated a $1.1billion bet he had on crisis-hit Netflix - despite losing $400million.

The hedge fund manager ditched the 3.1million shares he bought just three months ago as the turmoil at the streaming giant continued to spiral.

He yesterday announced his New York-based Pershing Square Capital Management was parting with the investment due to the firm's 'unpredictable' future.

Ackman told CNBC's Scott Wapner on Thursday morning that, 'I'm 100 percent ready to admit when I'm wrong and 100 percent ready to admit when I'm wrong, quickly'

'It's a great company run by a great management team at a time when there's a degree of uncertainty that doesn't make it fit in the Pershing Square portfolio.' 

Netflix lost $50billion overnight as its shares nosedived off a cliff amid a mass exodus of subscribers.

The streaming giant saw the huge losses after its stocks failed to regather over the course of yesterday from a record 35 per cent slump.

Pre-market trading this morning showed the company's shares remaining low at $226 - spiraling down from $348 on Tuesday afternoon.

Meanwhile its rivals appeared to rally as they released figures showing millions more subscribers over the last few months.

HBO Max and HBO customers skyrocketed by three million in the last quarter to 76.8million - showing a 12.8million spike year on year.

Billionaire investor Bill Ackman (pictured) has liquidated a $1.1billion bet he had on crisis-hit Netflix - despite losing $400million

 

This graphic shows how Netflix benefitted from the Covid boom. Between January and March 2020, business continued as it had done in 2019 and 2018, before the number of new accounts rocketed from mid-March through to May as much of the world went into lockdown.

Netflix CEO Reed Hastings: Founder with a Santa Cruz mansion

Netflix CEO Reed Hastings in the Milken Institute Global Conference in Beverly Hills on October 18, 2021

Hastings was born in Boston, Massachusetts, attended Bowdoin College, and after considering serving in the armed forces as a Marine, joined the Peace Corps instead. He then got a masters in computer science from Stanford University in 1988. Before Netflix, he founded Pure Software, a software troubleshooting company in 1991. He later left the company after an acquisition to start Netflix in 1997 with colleague Marc Randolph.

Netflix, which initially offered DVD rentals by mail, grew rapidly as the internet expanded and Hastings became the unchallenged boss when Randolph left in 1999. But it was when Netflix began producing its own content that the California-based company truly became a force to be reckoned with. Hastings certainly enjoys the fruits of his labour, sharing his vast home with his wife of more than 30 years, Patty Ann Quillin, and their two adult children, musician Molly and Sean. Together, they lead a lifestyle that seems an unusual blend of high-tech luxury and pastoral charm. It was previously reported that they own two private jets. The Santa Cruz mansion boasts an Olympic-sized swimming pool and a 12-person Jacuzzi. A home theatre – for Netflix binges, no doubt – has cutting edge Dolby Atmos surround sound, a system more advanced than most US cinemas. And their vast garage can house 12 cars, while the driveway has space for a further 15.

Ackman appeared to be the first big name to jump ship as his firm liquidated the $1.1billion bet it had on Netflix.

Pershing Square Capital Management sold the 3.1million shares it had bought just three months ago as Netflix' shares tumbled.

In January, he funneled over $1 billion into the streaming service just days after a disappointing forecast for subscriptions pushed the share price lower.

Now a second bout of negative news about subscribers - the company said it had lost 200,000 - prompted the fund manager to turn his back on a company.

Ackman said proposed business model changes, including advertising and going after non-paying customers, made sense but would be unpredictable.

He said: 'While Netflix's business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty.'

Pershing Square, which now invests $21.5billion, buys shares in only about a dozen companies at a time and needs a 'high degree of predictability', Ackman said.

Rather than wait around for things to improve at Netflix, Ackman locked in losses calculated to be more than $400 million, people familiar with the portfolio said.

After the sale, Pershing Square's portfolios are off roughly two per cent for the year, Ackman said.

Netflix said it had lost 200,000 subscribers in its first quarter, falling well short of its modest predictions that it would add 2.5million subscribers.

Its decision in early March to suspend service in Russia after it invaded Ukraine resulted in the loss of 700,000 members.

Profitable hedges helped Pershing Square survive the early days of the pandemic in 2020 and then again in recent months as interest rates began to rise.

The last three years have been among the best in the hedge fund's lifetime, including a 70.2 per cent gain in 2020.

But Ackman also acknowledged he had learned from leaner times when his fund backed Valeant Pharmaceuticals, a bet that cost the hedge fund billions in losses.

Pictured: Netflix subscribers over the past few months are pictured along with the projected first quarter of 2022

Netflix paid subscriber growth, showing a steep drop-off from 2020 to the first two quarters of 2021

Netflix is losing billions of dollars a year because of illegal password-sharing 'marketplaces' that offer access for just $1, experts have claimed. The popular streaming app is missing out on up to $6.25billion annually as customers use the services to dodge the $19.99 a month premium account fee.

He said in a statement: 'Today, we sold our investment in Netflix, which we purchased earlier this year.

'The loss on our investment reduced the Pershing Square Funds' year-to-date returns by four percentage points.

'Reflecting this loss, as of today's close, the Pershing Square Funds are down approximately two percent year-to-date.

'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.

'In our original analysis, we viewed this operating leverage favorably due to our long-term growth expectations for the company.

'Yesterday, in response to continued disappointing customer subscriber growth, Netflix announced that it would modify its subscription-only model to be more aggressive in going after non-paying customers, and to incorporate advertising, an approach that management estimates would take 'one to two years' to implement.

'While we believe these business model changes are sensible, it is extremely difficult to predict their impact on the company's long-term subscriber growth, future revenues, operating margins, and capital intensity.

'We require a high degree of predictability in the businesses in which we invest due to the highly concentrated nature of our portfolio.

'While Netflix's business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty.

'Based on management's track record, we would not be surprised to see Netflix continue to be a highly successful company and an excellent investment from its current market value.

'That said, we believe the dispersion of outcomes has widened to a sufficiently large extent that it is challenging for the company to meet our requirements for a core holding.

'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. We are in the midst of an opportunity rich environment for Pershing Square due to the dramatic shift in Federal Reserve policy, the highly inflationary environment, geopolitical uncertainty, and the resulting high degree of security price volatility.

'We therefore expect to find a good use for the Netflix proceeds. Please feel free to contact the investor relations team if you have any questions about the above. We are grateful for your support and long-term partnership.'

Netflix shares closed at $122.42 last night after shedding more than a third of their value in the company's biggest one-day drop on a percentage basis since 2004.

Its stock was the worst performing on the S&P 500 for the day and sparked the firm's largest one-day drop in market capitalization in its history.

The shares have now lost 62 per cent of their value since the beginning of the year, amid fears the streaming wars will prove to be an unwinnable money pit.

Despite Netflix's woes, its rivals appeared to be gathering momentum, with HBO Max and HBO reporting it had added three million subscribers in the last quarter.

AT&T said the channels had rocketed to 76.8million global customers as of March, marking a 12.8million spike on the previous year's figure.

It also proved popular in the US, with it adding 4.4million subscribers since last year to 48.6m. CEO John Stankey said: 'AT&T has entered a new era.'

This morning the telecommunications giant posted a 2.5 per cent rise in revenue for its core phone and internet business in the first quarter, as the telecom giant benefited from the expansion of its fiber internet and 5G services.

The Dallas-based firm - whose WarnerMedia unit which includes HBO and CNN completed its merger with Discovery Inc earlier this month to form the new media firm Warner Bros. Discovery - added 691,000 monthly phone subscribers during the quarter.

AT&T is returning to its roots of providing wireless services after unwinding a years-long effort to become a media and entertainment company.

Shares of AT&T rose 1.5 per cent to $19.73 in premarket trading.

The company's revenue for the standalone AT&T excluding WarnerMedia rose to $29.7billion in the first quarter from $29billion a year earlier.

But total revenue was down more than 13 per cent, reflecting the impact of its divested satellite TV business and weakness in its business wireline unit.

The company added 289,000 fiber internet customers during the quarter ended March 31.

Total global subscribers for premium TV channel HBO and streaming service HBO Max, which are part of WarnerMedia, rose by three million from the previous quarter.

Net income attributable to common stock fell to $4.8billion, or 65 cents per share, from $7.5billion, or $1.02 per share a year earlier.