Ackman's Netflix return: the business changed, and the price did too
Bill Ackman’s Aug. 12 Pershing Square letter explains why he re-entered Netflix after selling in 2022: a stronger business, more cash flow, and a much lower valuation create a new thesis—not a defense of the old one.
Pershing Square's sentence is unusually plain: "Netflix has since effectively won the streaming wars." The firm had owned the stock in 2022, sold after the thesis broke, and returned this week. In its Aug. 12, 2026 letter to shareholders, Pershing Square explains the re-entry as a new judgment about the business and the price, not a rescue of the old one. 1
"We acquired a position in Netflix, a business we briefly owned in 2022 and have followed closely ever since." 1
That is the useful part of Bill Ackman's latest view. He is showing what it looks like to change your mind without pretending the first decision was right all along.
The bet is a changed set of facts
Pershing Square bought Netflix in early 2022 and sold the full position about three months later, after Netflix reported its first subscriber decline in more than a decade. Ackman said at the time that the changes to the business model made its future prospects too difficult to predict with enough certainty. 2
The new letter starts with the problem that caused the old thesis to fail: a crowded streaming industry spending heavily to acquire subscribers, while Netflix's cash content spending exceeded content amortization and weighed on free cash flow. Pershing Square's current argument is that scale and discipline have changed that equation. Netflix now has more than 325 million subscribers, nearly twice the combined base of Disney+ and HBO Max, according to the letter. 1
The numbers Pershing Square uses to describe that change are more important than the slogan about winning. Content spending has grown at about 2% a year since 2021, while EBIT margin rose from 21% to roughly 31.5%. The firm says Netflix now converts about 90% of earnings into free cash flow, has advertising revenue approaching $3 billion this year, and grew revenue, operating profit, and earnings per share at annual rates of about 12%, 21%, and 27% respectively over the past five years. These are the letter's figures and estimates, not an independent forecast from this article. 1
The mechanism is straightforward: a larger paying audience lets Netflix spread the cost of a content slate across more customers. If competitors spend less recklessly while Netflix keeps its scale advantage, the same library can produce better economics than it did during the subscriber land grab. The question is whether those conditions persist. The figures alone do not settle it.
Why the competitive structure matters
A popular show can make a streaming company look strong for a quarter. Ackman's thesis is about something harder to copy: the cost structure around the whole service.
Pershing Square argues that Netflix can outspend rivals on content while carrying that investment across the industry's largest user base. It also expects the advertising tier to widen the addressable market and says AI concerns may be overstated because generating high-quality long-form video remains compute-intensive. In the firm's view, Netflix's scale should still matter even if AI changes how content is produced; AI could also improve recommendations and ad targeting. Those are Pershing Square's judgments, not established outcomes. 1
This is where the investment view can be tested. If AI sharply lowers the cost of making good video, the advantage may move toward whoever can produce the most content cheaply. If AI mainly improves discovery and advertising while high-quality production remains expensive, Netflix's audience and cash generation may become more valuable. The important variable is not whether AI is "good" or "bad" for Netflix. It is which part of Netflix's economics AI changes, and who captures the benefit.
Pershing Square's broader identity helps calibrate the claim. The firm describes its approach as buying simple, predictable, free-cash-flow-generative businesses with strong competitive positions, limited dependence on leverage or capital markets, and capable management. It says it models economic earnings over five to ten years, then compares the resulting business value with the price. 1
That makes Netflix a particularly revealing example of the method. Ackman is not claiming that a familiar brand is automatically safe. He is claiming that the company's economics now fit the firm's preferred pattern better than they did four years ago.
The price is the other half of the thesis
A stronger business can still be a poor investment if the market has already priced in the improvement. Pershing Square says Netflix's share price fell roughly 50% from its June 2025 high of $134, taking the valuation from more than 40 times forward earnings to about 21 times. 1
The letter's forecast is that revenue will keep growing at a double-digit rate, content costs will grow more slowly than revenue, and buybacks will help earnings compound at close to 20% annually. Pershing Square therefore calls the current multiple a substantial discount for a company with Netflix's growth profile and market position. 1
That conclusion depends on several linked assumptions: the growth rate holds, margins keep expanding, the buybacks create value, and the competitive moat survives changes in entertainment and AI. A lower multiple gives the thesis more room. It does not remove the need to check the assumptions.
What to carry into your own process
Ackman's re-entry is useful because it separates three questions that investors often compress into one:
- Did the business change? Look for durable evidence in margins, free cash flow, customer scale, and the cost required to retain that scale.
- Did the industry change? Ask whether rivals are still subsidizing growth at any price, or whether the competitive field has become more disciplined. The answer affects the economics of the leader, not just its market share.
- Did the price change enough? Recalculate the multiple against the earnings power you can defend. A stock can be cheaper at a higher price if the underlying business has improved, but that requires more than a story about future growth.
- What would break the new thesis? Track engagement quality, content costs, advertising economics, buyback discipline, and the effect of AI-generated video. Define the evidence before the position needs defending.
The lesson is not that Netflix is a buy, or that Ackman's forecast will work. It is that a past loss should not become either a permanent grudge or a reason to average down. Pershing Square sold when it could no longer see the business clearly. It bought again after the facts, the competitive structure, and the valuation had changed. That is a more demanding standard than keeping the same opinion; it asks whether today's business and today's price justify today's capital.
References
- 1Pershing Square, "August 12, 2026 Dear Pershing Square Shareholder"pershingsquareinc.com
- 2
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