Bill Ackman Rebuilds Netflix Stake After $400 Million Loss

Bill Ackman is back in the Netflix camp. After a high-profile exit in 2022 that cost his hedge fund more than $400 million, Ackman's Pershing Square Capital Management has disclosed a new position in Netflix, totaling 3.15 million shares. This stake now represents about 4.9% of Pershing Square's portfolio, according to recent filings. The move marks a significant reversal for one of Wall Street's most closely watched investors, who previously abandoned the stock after Netflix reported its first subscriber loss in a decade.

In 2022, Pershing Square's rapid exit from Netflix followed a sharp drop in the company's share price and uncertainty about its business model. At the time, Ackman cited unpredictable future results as the reason for selling, given the fund's preference for concentrated bets. Now, four years later, Ackman's tone has shifted. Pershing Square's latest investor letter describes Netflix as having "effectively won the streaming wars," pointing to its scale and profitability as key advantages.

What's Changed for Netflix

Netflix has rebounded from its earlier turbulence, now serving more than 325 million paid subscribers worldwide-nearly double its closest competitor. This scale allows the company to invest heavily in content while maintaining strong profit margins. According to Invezz, Netflix now converts close to 90% of its earnings into free cash flow, a metric that measures the cash left after operating expenses and capital investments. This robust cash generation supports aggressive share buybacks and fuels the company's fast-growing advertising business.

Netflix's ad-supported tier is expected to generate $3 billion annually by the end of 2026, roughly twice what it brought in the previous year. The company's most recent quarterly report showed revenue of $12.56 billion for the second quarter, up 13.37% from the same period a year earlier, based on its SEC filing. These numbers underpin Ackman's renewed confidence in the stock's long-term prospects.

Valuation and Timing

The timing of Pershing Square's purchase is notable. Netflix shares have dropped about 45% from their June 2025 peak as of late July 2026, according to the company's stock buyback history. This decline has pushed the stock's valuation to roughly 19 times forward earnings, its lowest level since 2022, as reported by 24/7 Wall St. For a company still growing revenue at a double-digit pace, this valuation is more typical of mature, slower-growth businesses.

Ackman's logic is straightforward: the market's disappointment over Netflix's recent guidance created a discount, and Pershing Square seized the opportunity. The firm expects Netflix to continue growing revenue at a double-digit rate while keeping content costs in check, which could widen profit margins over time, according to Reuters.

Strategic Shift Beyond AI

Pershing Square's new Netflix stake is part of a broader shift in Ackman's investment approach. Alongside Netflix, the fund has added positions in Visa, Mastercard, S&P Global, Intercontinental Exchange, and Alcon. These companies are known for steady cash flow and earnings, and most are outside the crowded artificial intelligence trade that has dominated recent market gains. This move signals Ackman's preference for durable profit growth at reasonable valuations, rather than chasing the next AI winner.

For investors, Ackman's strategy highlights the appeal of companies with proven earnings and strong market positions, especially when their stocks have fallen out of favor. Netflix fits this profile, generating substantial cash today rather than relying on distant projections. This approach echoes the kind of disciplined, value-driven investing discussed in our recent coverage of Michael Burry's contrarian bets.

Risks and What Needs to Go Right

Despite Ackman's conviction, the Netflix bet is not without risk. Viewer engagement across paid streaming services rose just 2% in the first half of 2026, while free platforms like YouTube and TikTok continue to siphon attention, according to TipRanks. Netflix has also stopped reporting quarterly subscriber numbers, making it harder for investors to gauge momentum. Content remains a wildcard; a weak programming slate could trigger further cancellations and slow growth.

For Ackman's thesis to hold, Netflix must deliver on its ad revenue targets, stabilize engagement, and meet its third-quarter guidance to rebuild investor trust. If these conditions are met, the stock's current valuation could prove attractive for long-term investors. But if ad growth stalls or content disappoints, the shares could remain under pressure.

Market Performance and Outlook

Netflix's recent stock performance has lagged the broader market. Over the past year, Netflix shares have fallen about 40%, while the S&P 500 has gained 16.58%. In the past month alone, Netflix dropped roughly 13%, though it rebounded nearly 7% in the week following Pershing Square's disclosure. This divergence between business fundamentals and stock price is central to Ackman's bet that the gap will eventually close.

For investors considering Netflix, Ackman's approach offers a practical lesson: start with a small position and add gradually if the price continues to fall, lowering the average cost. But it's essential to weigh the risks honestly. A stock can remain cheap for extended periods if growth stalls or market sentiment stays negative. Ackman is betting on Netflix's current cash generation and market leadership, but the outcome depends on the company's ability to sustain growth in a competitive landscape.

Netflix's business model relies on converting a high percentage of earnings into free cash flow, which supports both content investment and shareholder returns through buybacks. For investors, understanding the difference between reported earnings and free cash flow is crucial. While earnings reflect accounting profits, free cash flow measures the actual cash available to reinvest or return to shareholders. Companies with strong free cash flow can weather downturns, fund growth, and reward investors even when market sentiment is negative. But as with any investment, future performance depends on execution, competition, and the ability to adapt to changing consumer habits.