Netflix jumps 4% as Pershing Square discloses 3.1 million-share purchase
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Netflix (NASDAQ:NFLX) has jumped 4% postmarket following the release of an investor letter from Pershing Square saying it's been buying the company's stock since Friday, its first stake in Netflix, and has joined the company's top 20 holders.
"Beginning on Friday and over the last several days, we acquired more than 3.1 million shares of Netflix, making us a top-20 shareholder in the company," Pershing Square's Bill Ackman writes to investors. "The opportunity to acquire Netflix at an attractive valuation emerged when investors reacted negatively to the recent quarterâs subscriber growth and managementâs short-term guidance," he says, adding the decline was exacerbated by recent market volatility.
But Netflix's business has "highly favorable" characteristics including subscription-based, highly recurring revenues; best-in-class management and high-performance culture; economics of scale and high quality, building a powerful competitive moat; pricing power; "substantial" margin expansion; and the improving free cash flow profile allowing for continued investments in growth alongside shareholder returns.
The firm was ready for last Friday's price drop since it analyzed Netflix in connection with its investment in Universal Music Group, Ackman says.
To fund it, it's been unwinding the "substantial majority" of its interest rate hedge, bringing $1.25 billion in proceeds.
Netflix shares tumbled nearly 22% on Friday after its earnings report revealed subscriber growth that disappointed investors.