Pershing Square Inc. on Netflix, Inc.
Thesis
Pershing Square believes Netflix is undervalued because investors are placing excessive emphasis on slowing engagement growth and traditional watch-time metrics while overlooking the company's competitive strength, monetization potential, and earnings trajectory. Netflix continues to demonstrate strong operating performance, with quarterly revenue growth of 12%, and the fund expects revenue to sustain approximately double-digit growth over the next several years. The company's expanding advertising business and lower-priced ad-supported subscription tier are increasing its addressable market and creating additional monetization opportunities. Investment in live programming, new content formats, and AI-powered recommendations should improve subscriber value while making conventional engagement metrics less representative of the platform's economic strength. Netflix's ability to grow content spending more slowly than revenue should drive margin expansion, while its strong free cash flow generation supports substantial ongoing share repurchases. Pershing Square expects earnings growth approaching 20% annually and believes the current forward valuation of approximately 19 times earnings significantly undervalues the business.
“We believe the current forward multiple of 19 times vastly undervalues the company’s growth profile and business quality.”
Key risks
- Subscriber engagement growth may be plateauing, particularly in the United States and Canada.
- Investors may continue focusing on stagnating watch time as evidence of deteriorating engagement and competitive positioning.
- Expansion into live programming and innovative content formats may fail to improve the value proposition sufficiently to sustain revenue growth.
- Advertising expansion and AI-related improvements may not deliver the anticipated monetization benefits or operating efficiencies.