Ackman Dumps Netflix, Losing $400 Million As Shares Plummet

In January, the investor invested more than $1 billion in the streaming service, just days after the company's share price fell after a disappointing subscriber prediction. Now, a second round of terrible news concerning subscribers - the firm announced a loss of 200,000 - has forced the fund manager to abandon a company he had previously lauded.

Ackman said in a brief statement announcing the move that planned business model adjustments, such as advertising and pursuing non-paying consumers, made sense but would make the firm too unpredictable in the near run.

"While Netflix's business is essentially straightforward, we have lost confidence in our ability to forecast the company's future prospects with a sufficient degree of certainty in light of recent developments," he said.

Pershing Square, which manages $21.5 billion in assets, invests in less than a dozen firms at a time and requires a "high degree of dependability" from its portfolio companies, Ackman said.

Rather than wait for Netflix's fortunes to improve, Ackman locked in losses estimated to be more than $400 million, according to individuals familiar with the portfolio. Following the transaction, Ackman noted that Pershing Square's portfolios are down around 2% for the year.

Netflix said that it lost 200,000 customers in the first quarter, falling well short of its modest target of 2.5 million new subscribers. Its early March decision to cease operations in Russia after the invasion of Ukraine resulted in the loss of 700,000 subscribers.

Profitable hedging enabled Pershing Square to survive the pandemic's early days in 2020 and then again in recent months when interest rates started to increase. The hedge fund's performance over the previous three years has been among the highest in its history, with a 70.2 percent return in 2020.

However, Ackman admitted in his Wednesday statement that he had learnt valuable lessons during leaner times, when his firm backed Valeant Pharmaceuticals (NYSE:BHC), a catastrophic investment that lost the hedge fund billions of dollars in losses.

"One of the lessons we've learned from previous blunders is to respond quickly when we uncover fresh information about an investment that contradicts our initial assumption. That is why we chose to do it here "He wrote.