Pershing Square lost $400M on Netflix — Bill Ackman bought the wrong dip

Pershing Square Capital Management, Bill Ackman's hedge fund, built a $1.1 billion position in Netflix in January 2022, buying shares after the streaming company's stock had already fallen 40% from its peak. Ackman believed that Netflix's business model was fundamentally sound and that the selloff was overdone.

Just weeks after Pershing Square disclosed its position, Netflix reported its first subscriber loss in over a decade — losing 200,000 subscribers in the first quarter of 2022 and forecasting a further loss of 2 million in the second quarter. The stock collapsed another 35% in a single day. Ackman sold the entire position at a loss of approximately $400 million.

The loss was particularly embarrassing because Ackman had been a vocal advocate for the stock, appearing on CNBC to defend the investment. He admitted his mistake publicly, saying he had 'lost confidence' in the company after the subscriber numbers were released. The rapid reversal — from buying to selling in less than three months — was a dramatic departure from Pershing Square's typical long-term investment approach.

The Netflix loss added to a difficult period for Pershing Square, which had already suffered the $4.1 billion Valeant loss and was struggling to recover its reputation. The case became a textbook example of the dangers of buying a 'value trap' in a growth stock, where a company's fundamental business model is disrupted.