Netflix soars 10% after Bill Ackman reveals a $1.1 billion bet on the streaming giant
Netflix stocksoared 10% on Thursday after Bill Ackmanrevealed a $1.1 billion bet on the streaming giant.
Pershing Squarehedge fund purchased 3.1 million shares after a post-earnings decline.
- "We have greatly admired Netflix both as consumers and as investors, but have never previously owned a stake in the company," Ackman said.
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He essentially bought the dip in Netflix, which fell more than 25% last week after it's quarterly earnings report gave weaker-than-expected guidance for subscriber additions in the current quarter. Ackman's Pershing Square bought 3.1 million shares of Netflix since last Friday.
Ackman said the purchase was at an "attractive valuation" and that the recent decline has been exacerbated by broader market volatility and the short-term nature of investors.
This is the first time he has ever taken a stake in Netflix. "We have greatly admired Netflix both as consumers and as investors, but have never previously owned a stake in the company," Ackman said.
He was prepared to purchase Netflix at a discount after researching the streaming model behind his investment in Universal Music Group. "We are all-in on streaming as we love the business models, the industry contexts, and the management teams leading these remarkable organizations," Ackman said.
But on the other side of Ackman's bullish Netflix bet is concerns that the streaming giant has little room left to grow in the US, has declining pricing power as streaming competition heats up, and is seeing slower-than-expected growth in developing countries.
Ackman isn't buying the bearishness, saying in a letter to his investors that Netflix's "economies of scale and superb quality in its industry-leading content should continue to drive future growth and widen the company's powerful competitive moat."
Ackman also believes Netflix still has plenty of pricing power, which should help expand margins and improve its free cash flow profile. Despite Thursday's surge, Netflix is still down 24% from its earnings sell-off.
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