Investor Bill Ackman Dumps $1.1 Billion of Netflix Shares

thewrap.com:

company website: Dear Pershing Square Investor:Today, we sold our investment in Netflix, which we purchased earlier this year.

The loss on our investment reduced the Pershing Square Funds’ year-to-date returns by four percentage points. Reflecting this loss, as of today’s close, the Pershing Square Funds are down approximately two percent year-to-date.While we have a high regard for Netflix’s management and the remarkable company they have built, in light of the enormous operating leverage inherent in the company’s business model, changes in the company’s future subscriber growth can have an outsized impact on our estimate of intrinsic value.

In our original analysis, we viewed this operating leverage favorably due to our long-term growth expectations for the company.Yesterday, in response to continued disappointing customer subscriber growth, Netflix announced that it would modify its subscription-only model to be more aggressive in going after non-paying customers, and to incorporate advertising, an approach that management estimates would take “one to two years” to implement.

While we believe these business model changes are sensible, it is extremely difficult to predict their impact on the company’s long-term subscriber growth, future revenues, operating margins, and capital intensity.We require a high degree of predictability in the businesses in which we invest due to the highly concentrated nature of our portfolio.