It’s been four months since Pershing Square’s Bill Ackman gave up his short-lived stake Netflix (NFLX -0.75%). He sold the position on April 20 when the stock plummeted after a brutal earnings report for the leading premium streaming service. Netflix stunned the market with a sequential decline in global subscriber count and forecast a much larger decline for the second quarter.
Ackman held Netflix for less than three months, and it proved costly. The stock’s rapid decline was responsible for a 400 basis point pullback on Pershing Square’s performance. The hedge fund’s filing this week confirms the April sale and that Ackman did not buy back into the company.
It’s a shame. Depending on when someone let loose on Netflix on April 20, shares are anywhere from 2% to 17% higher on Monday. That doesn’t mean Pershing Square feels any seller remorse (at least not yet). Many of Ackman’s investments in its concentrated portfolio have fared better. However, with some interesting catalysts working in Netflix’s favor, it could be missing out on more than recent gains.
things did getting better for Netflix after Ackman took the proceeds from his realized loss elsewhere. Netflix would lose less than half as many net subscribers as expected in the second quarter. It also sees a return to sequential membership growth in the current quarter. It’s a good start, but the company needs to do even better if it wants to regain its racing stripes.
Netflix isn’t dead as a growth stock. Even after consecutive quarters of declining subscribers, revenue is still 13% higher than a year ago on a constant currency basis. As a globetrotter with 56% of sales outside the US and Canada, the reported growth feels the pinch of the strong dollar. Whether or not this continues to be a headwind, Netflix has plenty of interesting things working in its favor.
Let’s start with Disney (DIS 0.66%), the company that has become its biggest threat given the rapid success of Disney+ and Hulu. Disney shares have risen since House of Mouse announced that the monthly rate for Disney+, in its current ad-free form, will rise 38% later this year. Hulu is also getting a price boost. Disney will introduce an ad-supported tier at the old price.
If you like Disney’s move to roll out a new ad-supported plan, well, Netflix has been public about working on the same thing for months. If you can retrace the steps of the Netflix sub-slide, you might find yourself in an ill-advised January price hike. Will Disney meet a similar fate – or worse given that this is a much bigger surge? Netflix should be a beneficiary of Disney’s attempt to make its flagship streaming service profitable within the next two fiscal years.
There are also some homegrown catalysts cooking up at Netflix beyond the upcoming ad-supported option. It has been working on mobile games and personal experiences based on some of its more popular proprietary content. There’s also gossip about Netflix rolling out live programming, as well as theatrical releases for some of its high-profile films.
There are a plethora of premium streaming video platforms out there these days. Netflix is still the king of streaming service stocks, but it’s not contents about the state of its content. With subscriber numbers growing again this summer and new toys to play with, investors might want to think twice about following Ackman through the exit door.
Rick Munarriz has positions at Netflix and Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.