It's been four months since Pershing Square's Bill Ackman unloaded his short-lived stake in Netflix (NFLX -1.74%). He sold the position on April 20, as the stock plummeted following a brutal quarterly report for the leading premium streaming service. Netflix stunned the market with a sequential dip in global subscribers, forecasting a much larger decline for the second quarter.
Ackman held Netflix for less than three months, and it proved costly. The stock's swift decline accounted for a 400-basis-point hit on Pershing Square's performance. The hedge fund's filing this week confirms the April sale, and that Ackman didn't buy back into the company.
It's a shame. Depending on when someone cut Netflix loose on April 20, the shares are 2% to 17% higher as of Monday's close. This doesn't mean that Pershing Square is feeling any seller's remorse (at least not yet). Many of Ackman's investments in his concentrated portfolio have fared better. However, with some interesting catalysts working Netflix's favor, it could be more than just the recent gains that he will be missing out on.
Things did get better for Netflix after Ackman took the proceeds from his realized loss elsewhere. Netflix would go on to lose less than half as many net subscribers in the second quarter than it was expecting. It also sees a return to sequential membership growth in the current quarter. It's a good start, but the company will still have to do better than that if it wants to win back its racing stripes.
Netflix isn't dead as a growth stock. Even after back-to-back quarters of retreating subscriber counts, revenue is still 13% higher now on a constant currency basis than it was a year ago. As a globetrotter with 56% of its revenue being generated outside of the U.S. and Canada, reported growth is feeling the pinch of the potent greenback. Whether or not that continues to be a headwind, Netflix has a lot of interesting things working in its favor.
Let's start with Disney (DIS -0.12%), the company that has emerged as its biggest threat given the swift success of Disney+ and Hulu. Disney shares have been climbing since the House of Mouse announced that the monthly rate for Disney+ in its current ad-free form will soar 38% later this year. Hulu is also getting a price boost. Disney will be rolling out an ad-supported tier at the old price.
If you like Disney's move of introducing a new ad-supported plan, well, Netflix has been public about working on the same thing for months. If you can trace back the steps of the Netflix sub slide, you may find yourself at an ill-advised January price hike. Will Disney suffer a similar fate -- or worse, since this is a much larger increase? Netflix should be a beneficiary of Disney trying to make its flagship streaming service profitable within the next two fiscal years.
There are also some homegrown catalysts cooking at Netflix beyond its upcoming ad-backed option. It's been working on mobile games and in-person experiences based on some of its more popular proprietary content. There's also chatter about Netflix rolling out live programming, as well as theatrical runs for some of its high-profile movies.
There's a glut of premium streaming video platforms these days. Netflix is still the king of streaming service stocks, but it's not content about the state of its content. With subscriber counts growing again this summer and new toys for it to play with, investors may want to think twice about following Ackman through the exit door.