On Jan. 26, Pershing Square’s Bill Ackman announced that the fund had initiated a 3.1 million share stake in Netflix (NASDAQ:NFLX). The purchase amounted to more than $1 billion and made Pershing Square a top 20 shareholder of NFLX stock.
Ackman disclosed that he began purchasing shares on Jan. 21. From Jan. 21 to Jan. 26, Netflix traded in a range between $351.46 and $409.14. Using the midpoint of the range at $380 would mean that Ackman is down about 40% on his NFLX stock position. However, Ackman is not likely selling his position anytime soon. Here’s why.
Bill Ackman Not Likely to Sell NFLX Stock
Pershing Square is a high-conviction, long-term investor. The hedge fund has an average holding period of 17.43 quarters — or more than four years — for stocks in its portfolio. Therefore, its likely that Ackman won’t dump his Netflix position after holding it for less than three months. In fact, its probable that Ackman may be looking to increase his position at a major discount.
In addition, Pershing Square has over $10 billion in managed 13F securities. A hedge fund of this size has access to the best research available, and chances are that the fund saw the price decline coming. Furthermore, several sell-side analysts from firms like Jefferies and Rosenblatt warned investors of the impending subscriber reduction prior to the company reporting earnings.
Of course, there’s always the chance that Ackman may sell shares of Netflix. This is unlikely, unless his thesis for the company has changed.
Why Did Bill Ackman Buy Netflix?
In a letter to investors, Ackman detailed his thesis on Netflix. The hedge fund manager touts Netflix as a major beneficiary in the decline of linear TV (LTV). Furthermore, Ackman praised the company’s subscription-based recurring revenues, economies of scale and management team. Ackman also favored Netflix’s “rapidly growing, global subscriber base.” During Q1, Netflix reported that it had lost 200,000 subscribers when analysts were expecting an increase of 2.5 million subscribers.
However, one shaky quarter shouldn’t change Ackman’s thesis on Netflix, as he is a long-term investor. Ackman also stated the following after Netflix declined after issuing Q4 earnings: “The opportunity to acquire Netflix at an attractive valuation emerged when investors reacted negatively to the recent quarter’s subscriber growth and management’s short-term guidance.”
The same statement could be applied to the company’s recent earnings. All in all, it’s likely that Ackman won’t be parting ways with Netflix anytime soon.
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.