Is it time to buy the dip? Acclaimed billionaire hedge fund manager Bill Ackman certainly thinks so. Yesterday, Ackman announced via Twitter that his hedge fund, Pershing Square, had recently purchased a whopping 3.1 million shares of Netflix (NASDAQ:NFLX). If we assume Ackman bought near yesterday’s closing price of $360, his recent purchase would amount to more than $1 billion. Ackman’s purchase effectively makes him a top-20 holder of NFLX stock. In response, shares of NFLX are up over 5% this morning.
Ackman released a letter to investors detailing the rationale behind his NFLX stock purchase. In the letter, Ackman touts Netflix’s pricing power, economies of scale and future growth potential. For example, Ackman believes Netflix’s “industry-leading content” and “best-in-class management team” will lead Netflix to margin and cash-flow expansion. Ackman added that Netflix’s recent decline due to Q3 earnings allowed him to purchase Netflix “at an attractive valuation.”
To fund the Netflix purchase, Ackman explained that he reduced Pershing Square’s interest rate hedge by 80%, generating proceeds of $1.25 billion. Pershing Square still currently holds out-of-the-money (OTM) interest rate swaptions as a hedge to rising interest rates. Ackman added that:
“We invest in hedges not to protect the funds from a short-term mark-to-market loss, but rather because they can become a large source of potential liquidity at precisely the time stocks become cheap.”
For shareholders of NFLX stock, it’s great to know that Ackman believes Netflix is cheap. Now that we know that Ackman is a big Netflix bull, let’s take a look at what the rest of Wall Street thinks.
Where Will NFLX Stock Go Next?
- Piper Sandler has a price target of $565. Analyst Thomas Champion admits that Q4 was a “challenging quarter for our NFLX thesis.” Champion also adds that earnings results may be erratic for the next few quarters as the “post-pandemic growth cadence is re-established.” However, Champion believes that Netflix “remains early in the transition away from linear TV,” and that the streaming giant has revenue opportunities in gaming and merchandise.
- Guggenheim has a price target of $555. Analyst Michael Morris was disappointed with Netflix’s Q1 2022 guidance for new subscribers. Netflix released guidance of 2.5 million new subscribers, which was below Guggenheim’s estimate of 3 million. Morris concludes that “we expect investors will re-calibrate long-term member outlook and valuation expectations for Netflix and streaming media more broadly.”
- Jefferies has a price target of $415. Analyst Andrew Uerkwitz is still confident in Netflix’s “streaming penetration” potential. However, the analyst adds that “[o]n the adjacency front, we believe Netflix isn’t moving fast enough.” Uerkwitz is also worried that new revenue opportunities in adjacent markets are at risk.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
