Ackman bought Netflix in January 2022 and sold in April after a 35% plunge

In January 2022 Pershing Square disclosed it had bought more than 3.1 million Netflix shares, making it a top-20 shareholder after buying the dip. On 19 April Netflix reported its first subscriber loss in more than a decade and forecast a loss of 2 million paid subscribers in the second quarter. Netflix shares closed down 35% the next day, wiping more than $50 billion off its market capitalisation.

Bill Ackman wrote to investors on 20 April that Pershing Square had sold its stake. He said the 'enormous operating leverage' in Netflix's model meant changes in subscriber growth had an outsized effect on intrinsic value, and that, with a plan to crack down on password sharing and add advertising, 'we have lost confidence in our ability to predict the company's future prospects'. The loss cut the funds' year-to-date returns by four percentage points.

Ackman told CNBC that with eight or nine large positions the dispersion of outcomes was too wide to tolerate, and said one lesson from past mistakes was to act promptly when new information contradicts the original thesis. He said he would not be surprised if Netflix remained a very successful company.

Loss reduced Pershing Square funds' year-to-date returns by four percentage points, leaving them down about 2% for 2022

Ackman had bought after an earlier dip, expecting Netflix's operating leverage to amplify long-term growth.

The April report showed the first subscriber loss in a decade and a forecast of a further 2M loss, contradicting that thesis.

Netflix's plan to add ads and tackle password sharing was sensible but, Ackman said, hard to predict in effect, over a 'one to two years' timeline.

Pershing Square's portfolio was concentrated in eight or nine large positions, so one wrong bet hit overall returns.

A concentrated fund can only hold what it can predict. Buying the dip in a high-operating-leverage stock assumed growth continued, and one quarter changed the range of outcomes.

The Pershing Square funds were down about 2% for the year to date after the sale, and Ackman said he expected to find a good use for the proceeds. The article does not give the purchase or sale prices. Ackman said Netflix could still be an excellent investment from its new market value, but that it no longer fit as a core holding.