Netflix stock jumps 4% as Bill Ackman returns with a new stake

Netflix NFLX stock rose more than 4% on Thursday after billionaire investor Bill Ackman’s Pershing Square Capital Management disclosed a new stake in the streaming giant, marking a return to the company more than four years after exiting its previous investment at a loss.

In its second-quarter shareholder letter, Pershing Square revealed it had acquired a 4.9% portfolio stake in Netflix.

The hedge fund, known for running a concentrated portfolio of fewer than a dozen holdings, said it believes the streaming company is well-positioned for long-term growth despite the stock’s sharp decline from last year’s peak.

The renewed investment comes as Netflix continues expanding its advertising business and live sports offerings while investors reassess the company’s valuation following a prolonged share-price correction.

Pershing Square says Netflix has ‘won the streaming wars’

Pershing Square said its investment thesis has changed significantly since it exited Netflix in early 2022 after losing more than $400 million on the position.

“When we first invested in early 2022, investors feared an escalating content arms race among a crowded field of streaming entrants,” Bill Ackman and Pershing Square Chief Investment Officer Ryan Israel wrote in the shareholder letter.

The executives argued that those concerns have largely faded, adding that “Netflix has since effectively won the streaming wars.”

They pointed to the company’s dominant subscriber base, saying its scale has become self-reinforcing and allows Netflix to outspend rivals on content while converting roughly 90% of its earnings into free cash flow.

Pershing also said it expects Netflix “to compound revenue at a double-digit growth rate, with content costs growing more slowly than revenue, driving continued margin expansion,” while describing the stock’s valuation as “a substantial discount” and “highly attractive in terms of business quality and prospective earnings growth.”

Advertising and live sports strengthen growth outlook

Pershing’s renewed confidence comes as Netflix continues adding new revenue streams beyond its traditional subscription business.

The company has expanded into live sporting events to attract additional viewers while growing its lower-priced, ad-supported subscription tier.

According to the 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 from a year earlier.

Pershing also argued that concerns over competition from short-form video platforms have proven overstated.

The firm believes Netflix has sufficient financial resources to absorb higher computing costs associated with artificial intelligence and expects AI to improve both content recommendations and advertising targeting over time.

Valuation attracts investors after sharp decline

Netflix shares remain well below their previous highs after concerns surrounding engagement, failed acquisition rumors, and the company’s abandoned attempt to acquire Warner Bros. Discovery weighed on investor sentiment.

The stock has fallen roughly 42% from last year’s peak and was trading at around 24 times earnings, well below its three-year average valuation multiple of 43.

Pershing said the broader market’s focus on artificial intelligence infrastructure investments has created opportunities in other sectors.

Ackman and Israel wrote that the environment has enabled the firm to deploy nearly $5 billion since Pershing Square’s initial public offering earlier this year.

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