Netflix (NFLX.US) shares jumped more than 3% on Tuesday, trading at $78.75, following news that billionaire investor Bill Ackman's Pershing Square Capital made a significant purchase of the streaming giant's stock during the second quarter.
In April, Pershing Square had just completed raising $5 billion in new capital. During the second quarter, Ackman fully liquidated his position in Alphabet, redirecting those funds into Netflix, which had seen its share price pull back sharply in the first half of the year.
Pershing Square acquired over 13 million Netflix shares in the second quarter, bringing the position's market value to more than $934 million, representing nearly 5% of the fund's total portfolio. The firm, founded by Ackman, has delivered a cumulative return of 2,530% since 2004, with an annualized return of 15.6%, far outpacing the S&P 500's cumulative gain of 964% over the same period. The firm is known for its concentrated investment style, typically holding just 10-12 stocks.
Netflix's stock had been under pressure following its failed attempt to acquire Warner Bros. Discovery assets, which nevertheless yielded a $2.8 billion termination fee. Additionally, market concerns have persisted that short-form video and AI-generated long-form content could erode user engagement time. However, Ackman believes these worries are largely overblown.
He argues that short-form video is actually siphoning viewership from traditional television and lower-quality streaming services, noting that the explosion of short-form content over the past two years has not impacted Netflix's performance. Meanwhile, the cost of producing high-quality long-form content via AI remains extremely high, and Netflix's massive user base actually helps dilute content costs. Furthermore, AI could enhance Netflix's content recommendation algorithms and advertising targeting capabilities.