Netflix (NFLX) shares climbed more than 4% on Thursday after billionaire investor Bill Ackman's Pershing Square Capital Management revealed a new position in the streaming giant, signaling a return to a company it exited at a loss over four years ago.
In its second-quarter shareholder letter, Pershing Square disclosed that it had built a 4.9% portfolio stake in Netflix. The hedge fund, known for its concentrated holdings, said it sees Netflix as well-positioned for long-term growth despite the stock's significant decline from its 2021 peak.
The renewed investment comes as Netflix expands its advertising business and live sports offerings, while investors reassess the company's valuation after a prolonged share-price correction. Pershing Square's move underscores a shift in its investment thesis since it sold its previous stake in early 2022, losing more than $400 million.
Pershing Square: Netflix has 'won the streaming wars'
In the shareholder letter, Ackman and Pershing Square CIO Ryan Israel wrote that the competitive landscape has changed dramatically since their initial investment. "When we first invested in early 2022, investors feared an escalating content arms race among a crowded field of streaming entrants," they noted. Those concerns have largely faded, they argued, adding that "Netflix has since effectively won the streaming wars."
The firm highlighted Netflix's dominant subscriber base, which it says has become self-reinforcing, allowing the company to outspend rivals on content while converting roughly 90% of its earnings into free cash flow. Pershing Square expects Netflix to "compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue, driving continued margin expansion." They described the stock's valuation as "a substantial discount" and "highly attractive in terms of business quality and prospective earnings growth."
Advertising and live sports bolster growth outlook
Pershing Square's renewed confidence comes as Netflix diversifies beyond traditional subscriptions. The company has entered live sports to attract new viewers and expanded its lower-priced, ad-supported tier. According to reports, Netflix expects its advertising business to generate approximately $3 billion in revenue this year, while its 2026 US Upfront advertising commitments have nearly doubled year-over-year.
The hedge fund also dismissed concerns about competition from short-form video platforms, arguing they have proven overstated. Pershing Square believes Netflix has the financial resources to absorb higher computing costs related to artificial intelligence, and expects AI to improve content recommendations and ad targeting over time.
Valuation attracts investors after sharp decline
Netflix shares remain well below their previous highs, weighed down by worries over engagement, failed acquisition rumors, and the company's abandoned attempt to acquire Warner Bros. Discovery. The stock has fallen roughly 42% from last year's peak and trades at around 24 times earnings, well below its three-year average multiple of 43.
Pershing Square said the market's focus on AI infrastructure investments has created opportunities in other sectors. Ackman and Israel noted that the environment has allowed the firm to deploy nearly $5 billion since Pershing Square's initial public offering earlier this year.
Investors will be watching whether this renewed vote of confidence from a prominent activist investor marks a turning point for Netflix's stock. The company's continued push into advertising and live events, coupled with its strong cash flow generation, could support further upside if the market re-rates the stock.
This article is for informational purposes only and does not constitute financial advice.
