Bill Ackman Buys Large Netflix Stake: Here's Why He's Bullish

Hedge fund investor and Pershing Square Capital Management CEO Bill Ackman announced a new large purchase Wednesday, causing a bump in the share price of streaming giant Netflix Inc NFLX.

What Happened: Ackman tweeted that Pershing Square purchased 3.1 million shares of Netflix, which makes the hedge fund a top 20 holder in the company’s shares. The purchase of NFLX shares began on Friday and comes as Netflix shares are down 40% in the past month.

“We are delighted that the market has presented us with this opportunity,” Ackman said. “I have long admired Reed Hastings and the remarkable company he and his team have built.”

This is the first purchase of Netflix shares by Ackman, who said he is a customer of the company’s product too.

Related Link: Here Are The Ten Most Watched Netflix Series Of All-Time 

Why Ackman Bought Netflix Shares: In a letter to shareholders, Ackman said Netflix is a winner in the growth of streaming over linear TV.

“Its subscription-based, highly recurring revenues, which have enormous future growth potential,” Ackman said.

Ackman said Netflix has “industry-leading content,” which gives it a competitive moat and pricing power over rival streaming services.

A growing global subscriber base and room for margin expansion were also highlighted by Ackman.

“We began analyzing Netflix in connection with our investment in Universal Music Group, so we were prepared when the stock price declined sharply last Friday," he said.

With UMG and Netflix, Ackman said Pershing Square is “all-in on streaming” due to a love of the businesses and business models.

Ackman sold some of the company’s hedges against inflation to fund the purchase of Netflix shares, calling the stock a better risk-return than previous investments.

“Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinary attractive when one has a long-term horizon.”

Ackman mentioned the potential of Netflix to return cash to shareholders in the future, which could lead to a push for more buybacks or a dividend from the investor.

NFLX Price Action: Netflix shares are down 1.83% at $359.70 Wednesday at market close.

Photo: CNBC screenshot