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Hello everyone again. Breaking news just arrived: Bill Ackman has once again become a Netflix shareholder. That's right . After briefly owning the stock for about 3 months in 2022, he finally decided to return. So what has changed? Why is Bill Ackman now buying Netflix, even though he previously owned the company and once called it too unpredictable?
It seems he has changed his mind about both Netflix and a number of other companies. In fact, he didn't just add Netflix to his portfolio, he acquired six new assets. That's a lot of shopping. Bill Ekman had a real shopping spree. But the most interesting thing is that I already own three of these six new companies.
Three of them were Netflix, MasterCard, and S&P Global. They all take up a large share of my portfolio. So, of course, I have a lot of opinions on his analysis of these companies. Along with his analysis, he released a whole detailed report. This is Pershing Square's second quarter report. It is very deep.
He goes into detail about his strategy and what he is trying to achieve. It goes through each asset and its performance indicators. He also looks at valuation and projected growth rates, how much he thinks earnings per share at these companies will grow over the next five years . So, I compared all of his estimates to the market consensus forecasts to see which companies he thinks will grow the most today compared to investor expectations.
So this is going to be a very eventful episode. We have a lot to discuss. Let's get started. The first thing I want to point out is that many of my holdings overlap with Bill Ackman's portfolio. But, in my defense, I want to note that I bought most of them before Bill Ekman. I have long invested in many of these companies .
I bought Meta before it was known that Bill Ackman had bought Meta. I had Google before he bought Google. I had Microsoft before it appeared in his portfolio. I had Amazon before he bought Amazon. I had Netflix twice before he bought it. The same is true now for Mastercard and S&P Global. Of course, there are companies that I entered after Bill Ackman.
One was Chipotle, which was a successful investment , and the other is Uber—a new position that I really like. But I point this out because our portfolios overlap to a large extent, but I'm not just copying his trades. I owned most of these companies before Bill Ackman started buying them. Now, among the new companies he just acquired, I want to highlight Netflix first.
I find this particularly interesting because Bill Ackman used to own Netflix, and I also owned that company for a long time. I owned it both times before Bill Ackman. So, he has owned it twice already . This is his second time. And I've only owned it once in all this time. My position is $102,000, with a profit of $30,000.
If we look at the history of Netflix's stock price, I'll briefly describe Bill Ackman's dealings with this company a few years ago. In early 2022 or late 2021, he bought the company after it fell significantly. So right then, Netflix fell 25% in one day due to slowing growth. We had a serious slowdown in subscriber growth, and management warned about it.
They stated that this was a problem. We are experiencing a slowdown in subscriber numbers. After studying the company, Bill Ackman thought that this might just be a minor downturn and he could buy the company today and it would go up again in the future. But he didn't know that Netflix stock would stay flat for the next 3 months, and then things would get much, much worse.
Netflix executives said that not only will they not increase their subscriber base, but they will also lose 2 million. So, millions of customers were lost. Their user churn accelerated. They are no longer a growing company, and literally everything has been turned upside down . Wall Street now viewed Netflix as “yesterday,” a company that had completely saturated the market.
She couldn't grow at all . It had no ability to change prices, and competitors were pushing it out of the market. The news was so incredibly bad, I had never seen anything like it. YouTubers have been making videos about the rise and fall of Netflix with big arrows and explosions, showing it collapsing.
People were almost happy that this big company was going downhill so quickly. From its peak to its lowest point, Netflix fell by about 75%. And again, the mood couldn't have been worse . Everyone made fun of whoever owned this company. It was a terrible time for Netflix shareholders. And Bill Ackman, 2 days after that report and the stock's fall, decided to get out of the game.
He called CNBC and said the stock had become too unpredictable and he wanted to move to a more stable company. As he told me, the reason he closed his position after just 3 months with a $400 million loss was, and I quote, "I'm 100% willing to admit when I'm wrong, and 100% willing to admit it quickly." So, that gives you an idea of what his reasoning was.
So he sold Netflix shares around the very bottom. This is not a criticism of Bill Ackman. We all have to make decisions based on our own judgment. He had a different analysis of this company than I did at the time. And I would say that my analysis of Netflix at that point was exceptionally optimistic about the company.
I understood that at the time it was a somewhat unconventional idea. I studied Netflix very carefully . I felt very confident about this. Perhaps due to a certain naivety. Maybe I was too cocky. But I just couldn't fathom that Netflix's growth was over. It was such a large-scale global company. They had so much content.
In my opinion, they owned the world, and I thought the market was wrong. So while that was happening, I continued to build my stake in Netflix. I bought more and more shares of the company. I kept buying them and kept talking about it. In fact, I have even published and written extensively about Netflix.
It was December 1, 2022. The stock price at the time of writing was $30. So, I wrote this on December 1, 2022: Netflix is trading at $30 per share, adjusted . I looked through everything and highlighted a lot of different things that were happening with Netflix at the time. Netflix has reported losing subscribers for two consecutive quarters.
Netflix's loss of subscribers has undermined investor confidence, causing shares to fall more than 70%. Netflix has changed its mind about going ad-free and has introduced a new ad-free plan for $7 per month. Netflix has decided to monetize accounts with shared passwords. Netflix has admitted that it faces real competition in the streaming space.
Netflix has made a U-turn towards video games. Netflix has made staff cuts and budget cuts. So when you look at this situation, it illustrates what happens during a stock market crash, when it's down 75%. Everything is interpreted negatively. All of these steps taken by Netflix seemed desperate at first glance.
Oh, they changed their mind and are now adding ads. They are entering the video game market. They are monetizing the fight against password sharing. All of this looks like desperation, although in reality these are well-calculated steps by the leadership. I went on to say that the damage to Netflix's reputation over the past year is real.
Investor confidence has shaken. Even Bill Ackman bought Netflix shares at a low level, but quickly sold them 3 months later when Netflix had another bad quarter. He stated that these stocks were, and I quote, "too unpredictable for his concentrated portfolio." This is where I continue to strongly disagree with the market and with Bill Ackman.
I don't think Netflix is all that bad. I don't consider the company unpredictable. In fact, I consider Netflix to be one of the most predictable companies on the market. I keep talking about how Netflix creates popular shows. You've seen "Knives and Blades: The Glass Onion. " You've seen "Dahmer." We saw "Wednesday." We've seen all these shows they're making and they've been pretty good.
When I analyze the facts about Netflix, I don't see the company in trouble or in crisis. I see a company that is still dominant and thriving. Netflix is the only major streaming company that generates positive free cash flow from its business. Netflix remains profitable and growing, despite competitors spending tens of billions of dollars on streaming to catch up with Netflix.
Since then, over the following years, Netflix's stock price has rapidly risen, up about 600% from its lows. And while many other streaming giants, like Paramount and Disney, poured tens of billions of dollars into streaming, most of them gave up. They cut their budgets and gave in to Netflix in this battle.
As Netflix confidently won that streaming war and is completely dominant, the stock price rose to $135. Huge heights for Netflix, all-time highs. But then, as you can see, Netflix has fallen significantly over the past year. This year, stocks are actually continuing to fall by almost 40%. Consequently, the company lost a significant portion of its profits from its historical highs.
And why is this happening? The reason is that there is now a new fear embedded in Netflix's stock price . They initially tried to buy Warner Brothers Discovery, which didn't appeal to many investors. They thought it was a signal of Netflix's weakness. Netflix viewed this as a content acquisition, but many investors decided it meant a drop in engagement, which is why they needed acquisitions.
This story about the engagement problem lowered the stock enough to make it attractive to Bill Ackman again. And he recently opened a new position at a price of about $74 per share. So, approximately at the level of today's trading. He reinvested in the company. This is the story of Bill Ekman's relationship with Netflix.
And although it's easy to criticize from the outside and say: "Look, Bill Ackman sold the company last time after a short time." That's true, but he also bought her shares again. He did this during a significant downturn, and it demonstrates a certain flexibility of thinking. When you may have a company that you lost money on but want to turn it into a successful investment again, you buy it back and maintain discipline.
I consider it a strength that he was able to change his mind about Netflix and get back into position. And the situation for Netflix has changed significantly for the better. But one problem still remains—the issue of engagement. Here's what he says about Netflix. He says, “When it comes to engagement, investors have focused on the metric of watch time without properly considering the quality of that time or the impact of changing geographic audience composition.” So, he outlines two reasons why investors are confused about Netflix's engagement issue.
One is that engagement does not equal watch time. Another is the geographical changes in audience structure, as he calls it. Now I want to show a short snippet of a video I made 2 days ago about Netflix. Here it is . The reason for the stock's 37% drop over the past year can be largely explained by the narrative that Netflix has engagement issues.
That viewing time and engagement per subscriber are falling. But the way Netflix measures it—engagement— is different from simple watch time. Watch time is important, but watch time on social media, where you scroll through YouTube Shorts or Instagram Reels, is different from watching a movie. One of them may have a greater impact on user satisfaction.
When you watch a series that truly captivates you, it's a higher quality of engagement and enjoyment than just flipping through Reels in the restroom or during lunch. So, I outlined the exact same thing earlier this week. That engagement does not equal watch time. And this is exactly what Bill Ekman points out.
He says that, for example, live streams only account for a small fraction of viewing time, but they are crucial for new subscriptions and customer retention. But there's another point he makes—what he calls, quote, " geographical changes in audience composition." This is another problem that investors misunderstand.
And of course, earlier this week I already commented on the change in geographic distribution in this video. The regions of the world where people watch the most TV are already largely saturated. That is, the United States, Canada, and Europe. In other regions where they are growing rapidly, people don't watch as much TV.
They spend less time on it. So, while the number of subscribers is growing, the viewing time per subscriber is lower in these new regions . But this is not an internal problem of the company. So, of course, I agree 100% with Ackman on this issue. I've been saying the same thing for months: Netflix doesn't have an engagement problem, and part of what's happening is skewed by changing geographic distribution.
He then moves on to another argument the bears have about Netflix—short videos. He says: In our opinion, time redirected to short videos is more likely to be taken from sources like linear TV and lower- quality streaming services than from basic services like Netflix. Given this, the growth in short video consumption has been the sharpest in the last 2 years, but has not had a noticeable impact on the company's results.
Short videos have been around for a long time. They are developing rapidly , just like Netflix. Netflix continues to grow rapidly. Look at the revenue. Look at the number of subscribers. Whatever short videos do, they don't hurt Netflix. We don't see anything like that in the numbers themselves. So, I think this is another important point worth highlighting.
Combined with a robust share buyback program, we expect earnings to grow by nearly 20 % annually. We believe the company's current valuation represents a significant discount for a business with such a strong growth profile and dominant market position. So, that's his argument about Netflix, and I obviously agree with it .
I have emphasized these same points many times over the past few months, and I am glad that Bill Ackman has added Netflix back to his portfolio. Hopefully his experience will be better this time. Now let's move on to S&P Global. This is another new position in Ackman's portfolio. Of course, after the show I will say that it was also in my portfolio for a while.
I have owned S&P Global shares for some time now. It is currently a $104,000 position. I'm up about 18%, which is $13,000. I own them through two accounts. I have another small position of $18,000 in a mutual fund with a profit of $2,000. He says: “ Our opportunity to invest in S&P Global came amid concerns about AI crowding out the company’s data, workflow and analytics offerings , including Capital IQ.” I remember it perfectly now .
It seems like yesterday. Here's what happened: on Twitter, on X, Claude released a plugin for financial analysis. So, they said, “Oh , you can connect it to financial dashboards. It can review and analyze companies, and you can do all the things that seem similar in many ways to what S&P Global does.” And investors went crazy about it.
A bunch of likes , a bunch of retweets, it spread everywhere. Every investor looks at this and thinks, “Oh no. Claude moved from programming to finance. S&P Global and Moody's, these companies are finished." And the stocks fell that day, and continued to fall. And Bill Ekman watched it. He said: "In February this year, the stock fell more than 25% from peak to trough after the launch of Anthropic Claude Co-work." This is the name of the plugin.
As a result, the stock valuation fell from 25 to 19 earnings per share, which is the lowest valuation in the last 5 years and a bargain for a company often called one of the highest-quality businesses in the world. It's incredible that S&P Global today, which is again considered one of the best companies in the world, is trading at a multiple of 21.
And the interesting point that I'm going to make now is that even if Claude were to hypothetically completely destroy market analytics— the thing that he actually competes with—if it were to reduce that business line of S&P Global to zero, that is, completely destroy that entire line of business , the forward P/E ratio of S&P Global would be 26.
That's what we're talking about here. The concerns about Claude are real, but they are dramatically exaggerated. Capital IQ, their desktop app that has garnered disproportionate investor attention this year, accounts for less than 7% of total revenue and an even smaller percentage of total profits. On the other hand, over 40% of market analytics revenue is generated by selling proprietary and curated data, which is typically deeply integrated into clients' workflows.
The part that could be displaced by Claude is a tiny fragment of the market analytics business. He says: “We believe investors have become too focused on potential threats to a small part of the company in the market analytics segment and have lost sight of the fact that future earnings growth is possible.
Which will be almost exclusively determined by the company's core business." These high-growth franchises should enable the company to achieve its multi-year goal and significant revenue growth. So, according to Bill Ackman, investors are focusing on the wrong thing, and I think the same. Investors are easily intimidated.
We see this over and over again in various great companies. They exit assets as soon as Claude or Anthropic release a new feature, without even knowing how it will affect the company. And they did the same thing with S&P Global. When you listen to the reports and learn about the company's affairs, everything is going as usual for them.
In fact, they are growing faster than expected in many areas. So this is another Bill Ackman buy that I obviously like. Now the next company that Bill Ackman bought and that I already own is MasterCard. And this is an exciting moment. This is literally one of my biggest positions. I own $188,000 worth of stock.
It is now 89% profitability taking into account cash flows. That's $40,000 in profit. And I actually increased my stake in MasterCard this year. He bought both Visa and MasterCard as one joint investment. He says: “Earlier this year, we opened positions in Visa and MasterCard—two businesses we have long admired, providing the dominant global network for consumer and commercial payments.
We believe that stablecoins represent an opportunity for card networks, not a threat. In fact, they are most relevant where cards are not dominant. Cross-border payments between companies, expensive money transfer corridors, and dollar savings in countries with unstable currencies. Implementation in these areas should grow in parallel with card transaction volumes, not at their expense.
So, not only is he not worried about stablecoins, but he also sees it as a positive factor for development. He also says that regarding agent technologies, agent commerce is more likely to expand the payments ecosystem than weaken the network's competitive advantage, as agents remove friction, enable more frequent purchases, and accelerate digital e-commerce.
Agents should embrace, not replace, consumers' existing payment preferences . So, again, I think this is a timely buy on the downturn and another great addition to the Pershing Square portfolio, and I continue to hold my position in MasterCard. I am just as optimistic about it . So, as Ekman added Netflix, MasterCard, and S&P Global, our portfolios are becoming more and more similar.
But then he also added companies that I do n't have. So, there are a few additions that we will look at. One of them is Intercontinental Exchange. Most of ICE's revenue from exchange operations comes from futures and options trading. This looks like a new type of business for Ackman's portfolio, but it reminds me of S&P Global.
He says we believe that a favorable macroeconomic backdrop and strong long-term drivers should allow ICE to achieve growth in the low to mid- teens. In summary, this is a classic simple business generating projected free cash flow that was sold off due to fears that we believe were unfounded. Another company he bought that is not currently in my portfolio is called Alcon, and it is one I was not familiar with.
Alcon is a leading global ophthalmic company with a dominant position in surgical vision and strong positions in vision care and contact lenses. So, this is a medical ophthalmology company that is a powerful franchise, benefiting from a huge global installed base , strong brand loyalty, and unparalleled commercial capabilities.
The core of Alcon's business is a dominant surgical vision franchise, supported by an installed capital equipment base of over 30,000 units. This base provides an extremely attractive stream of high-margin revenue from consumables. We expect Alcon to deliver significant profitability growth from current levels as the company grows earnings at mid-teens percentages and its valuation multiple rises to a level that better reflects the quality of its core business.
So, here are the six new companies in Ackman's portfolio. Now, in addition to these six new assets, Ackman also provided brief updates on his existing positions and his current thoughts. For example, regarding Uber, he notes that the stock continues to fall in price due to autonomous vehicles, but he does not share the same risks regarding it as the market.
Broad investor concerns about the potential long-term impact of autonomous vehicles continue to weigh on Uber shares, highlighted this quarter by evidence of an increasingly complicated relationship with its partner, Waymo. But, putting those concerns aside, the company continues to make significant progress with its many other strategic partners, planning to launch autonomous vehicles in several new cities later this year.
Against this backdrop, Uber continues to demonstrate very strong operating financial performance, with earnings growing at a rate of approximately 35% per year. The valuation is becoming increasingly disconnected from fundamentals, and it is currently trading at just 19 earnings, close to its lowest valuation ever .
Uber already has the critical mass of demand needed for a successful ridesharing business , and a hybrid model that employs both humans and autonomous vehicles will always be preferable to a purely autonomous model. Uber has many advantages, and while I believe Waymo will succeed, it has in no way hindered Uber's success.
The company continues to grow even in markets where Waymo is succeeding. I own Uber shares. This is one of the positions I bought after Ekman appeared in it. I agree with his thesis. I think this company will do very well. Meta is another company he talked about in this report. I also have a large stake in Meta.
It's down about 14 % now, and Meta is a position I bought before Ekman's ownership of the stock became known. He continues to view Meta as one of the best stocks on the market today. He says: quote, we see Meta as one of the most obvious beneficiaries of AI, driving engagement through better content recommendations, greater ad monetization through improved targeting, and significant product innovation across consumer and business agents.
Although it is still early stages, these benefits are already visible in accelerating revenue growth in Meta's core advertising business. Meta's investment in computing power also provides downside protection, as unused internal resources can be profitably monetized in a supply-constrained market. Every time Meta's P/E ratio dropped to the teenage levels, it was a great deal.
Look at history, every time the forward P/E was between 10 and 20, those were times when it was worth owning those stocks. This is exactly where Meta is today. So, overall I like these updates. I think he's right about Meta and Uber. I like his new Netflix purchase. I like the thesis on MasterCard and Visa, as well as S&P Global.
A great addition to the portfolio. Overall, this is a very strong portfolio. And finally, I think it's worth highlighting a part of his letter that I found particularly interesting. We know that Bill Eckman has invested in all these companies, the hyperscalers, the CAPEX spenders, these digital networking companies, but he doesn't own Micron or Nvidia, he doesn't own Sandisk, he's not in these AI companies.
And he believes that the outpacing growth of this subset of companies is likely temporary. He says: "While the S&P 500 index rose about 10% in the first 6 months of the year, almost all of the gain came from two sectors that provide tools for AI infrastructure." Just two of the 24 S&P 500 sectors, namely semiconductors and technical equipment, which comprise only 8% of companies and 22% of the index's market capitalization, have accounted for nearly 85% of the S&P 500's year-to-date gain.
As a result, over 90% of S&P 500 companies collectively delivered less than 2% total returns. This is a staggering statistic. 90% of companies generate less than 2% of total profit. We are fortunate that the current market situation has created extremely attractive conditions for Pershing Square, allowing us to profitably invest $5 billion in cash.
So, he used it as an opportunity rather than a problem. He views these companies that were left behind as a chance to buy their shares now. This concludes this episode. We hope you enjoyed it. See you in the next issue.
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