The investment advisory firm of billionaire investor William Ackman sold its stake in Netflix Inc (NASDAQ:NFLX) for a US$430mln loss, just three months after backing the digital streaming service.
As Netflix's stock plunged following news it is losing subscribers for the first time in over a decade, the hedge fund manager told shareholders it was liquidating its US$1.1 billion bet on the streaming service.
Netflix's stock slumped 35% yesterday, pushing Pershing Square to sell its 3.1mln shares.
Pershing Square purchased Netflix shares in January for an average price of US$354 per share.
Including this loss, Pershing Square is down about 2% this year.
In a statement announcing the decision, Ackman said Netflix's proposed model changes, including advertising and going after non-paying subscribers, made sense, but would be unpredictable in the short run.
"While Netflix's business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty," he wrote to shareholders, reports Reuters.
Ackman noted that Pershing Square, which now invests US$21.5 billion, buys shares in only a dozen companies and likes a "high degree of predictability" from its portfolio companies.
“Changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value.”