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• Netflix’s share tumbled more than 30% in the last five days
• Ackman said the company has the “best-in-class management team and unique high-performance culture.”
Netflix Inc’s (NASDAQ: NFLX) shares spiked after billionaire investor Bill Ackman late Wednesday said that he had built a new stake worth more than $1 billion since the stock price of the streaming company tumbled starting last Thursday.
Ackman, the founder and CEO of Pershing Square Capital Management, started buying the dip on Friday and now owns more than 3.1 million shares in Netflix, worth $1.1 billion, making the hedge fund a top 20 shareholder.
In a letter to his clients, Ackman praised the streaming giant’s “best-in-class management team and unique high-performance culture.”
On Twitter, the manager said he has long admired Netflix CEO Reed Hastings and the “remarkable company he and his team have built.”
Netflix shares climbed nearly 9.8% on Thursday.
Pressure on Netflix
The shares of the California-based company tumbled more than 30% in the last five days, a much steeper drop than the broader market after Netflix forecast weak subscriber growth the previous week.
However, Ackman said, “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. Netflix’s substantial stock price decline was further exacerbated by recent market volatility.”
Netflix has been facing heat from its competition lately and has changed its subscription pricing strategy in different markets.
Last month, the company slashed its plan prices in India to tap on the vast population and raised monthly subscription prices in the U.S. and Canada this month.
Pershing’s bet on streaming
Pershing Square had been analyzing Netflix at the same time when the fund was investing in Universal Music Group.
“Now, with both UMG and Netflix, we are all-in on streaming as we love the business models, the industry contexts, and the management teams leading these remarkable organizations.”
Ackman said Netflix benefits from highly recurring revenues, adding the company has pricing power and delivers industry-leading content.
Pershing Square traditionally holds only shares in high-quality businesses that can withstand inflationary pressures due to pricing strategy to preserve profits, including Lowe’s, Chipotle Mexican Grill, and Dominos Pizza Inc.
Picture Credit: CNBC