What happened
Shares of Netflix (NFLX -9.09%) bucked the broader market downturn on Thursday, surging as much as 9.8%. As of 2:58 p.m. ET today, the stock was still up 8.9%.
The catalyst that drove the streaming pioneer higher were reports that a hedge fund has purchased millions of shares since the stock began plummeting late last week.
So what
Pershing Square Capital Management, run by billionaire investor Bill Ackman, announced yesterday that the hedge fund had been purchasing Netflix stock hand over fist, amassing more than 3.1 million shares over the past week and making Pershing a "top-20 shareholder." Ackman cited an attractive valuation due to the recent "substantial stock price decline [that] was further exacerbated by recent market volatility."
Image source: Getty Images.
Netflix reported disappointing fourth-quarter results last week, adding 8.28 million subscribers, missing its own guidance for 8.5 million. Additionally, the company forecast weaker-than-expected growth of just 2.5 million new subscribers in the first quarter (its weakest showing in nearly a decade), adding fuel to the monumental sell-off.
As a result, shares had plunged more than 29% since the ill-fated report, making Netflix stock a bargain that Ackman found too good to pass up.
"I have long admired [Netflix CEO] Reed Hastings and the remarkable company he and his team have built," Ackman wrote in a post on Twitter. "We are delighted that the market has presented us with this opportunity."
Now what
It's important to note that since the onset of the pandemic, Netflix has added nearly 55 million new subscribers, bringing the total to nearly 222 million. The streaming giant has long maintained that the accelerating growth would come at the expense of future periods. "We saw significant pull-forward of our underlying adoption leading to huge growth," Netflix management wrote in a shareholder letter early in the pandemic.
Netflix is still the undisputed leader when it comes to streaming video, so investors shouldn't put too much stock in the results of a single quarter.
"Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon," Ackman wrote.
I couldn't have said it better myself.
