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Today, fellow investors, I just made a video about Netflix, and here comes the news that Bill Ackman of Pershing Square Holdings has sold his stake. In his short letter to shareholders, he describes how they sold their investment in Netflix, acquired earlier this year. They suffered a loss of $400 million, and he goes on to explain that they highly value management and that it is a remarkable company with great operating leverage, a good business model, but changes in future subscriber growth could have an undue impact on our estimate of intrinsic value .
In our initial analysis, we viewed this operating leverage positively due to our expectations for the company's long-term growth. Yesterday, in response to the continued disappointing growth in customer numbers. Netflix announced that it is modifying its subscription-only model to be more aggressive.
And Bill Ackman says that this could work very, very well, but it's extremely difficult to predict the impact on the company's long-term subscriber growth, future revenues, operating margins, and capital intensity. Due to the difficulty of forecasting and higher uncertainty than Bill needed, he sold the stake because we lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty.
Given the management's track record, we wouldn't be surprised if Netflix continues to be a very successful company and a great investment at its current market value. However, we believe that the dispersion of results has increased to such an extent that it is difficult for the company to meet our requirements for the underlying asset.
And then, learning from past mistakes, act promptly when we learn new information about an investment that contradicts our initial thesis. And of course, the main reason he sold is because maybe there's another opportunity that looks much better, much more attractive. So , compared to other opportunities, Netflix's risk-reward ratio is no longer appropriate for his portfolio.
My opinion on Bill Ackman's sale is this: okay, the most important thing is that he found something better. So, he took a $400 million loss to perhaps get a better risk-reward ratio elsewhere. As he himself says, there are better opportunities. The second thing , which he certainly won't write in the letter, but which is typical of Bill, is that he talked to management after purchasing the stake, and management didn't listen to him, so he got angry and dumped the shares.
This is typical of Bill, and it could very well be the reason why he sold them. I also don't think business is any different from what it was three days ago. We all knew the market was saturated. We all knew that these accounts existed and that we all gave our passwords to others. There is nothing new in this.
If he had watched my video, he would have known this two months ago. So, there is nothing new here. So Netflix still has 200 million subscribers, it's still making money, growing, and has great potential. I think that might be correct, and of course we'll never know the truth because it won't come out.
But when it comes to investing in Netflix, I really think it comes down to whether it's right for you, not Sven, Bill, or Warren. Perhaps there is an opportunity to purchase a good business at a good price, but don't rush. You have time to research everything, reach a high level of confidence, and buy if it suits you.
And then, of course, you have to compare the risk and reward with the price. Investing is, first and foremost, about price. Will Netflix disappear in 2, 3, 4 years? Unlikely, because the subscribers are quite loyal. Now watch the video I made before I found out Bill Ackman sold his shares. This is just an update where we discuss Wall Street share, earnings reports, the current situation, and how to approach it from an investment perspective.
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