[Summary] Netflix Loses 67 Trillion Won in Market Cap in One Day... 'Little Buffett' Ackman Also Cuts Losses

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joeslgina, Reporter Jeong Hyeonjin] "The worst day in 18 years."

The world's largest online video streaming service (OTT) company, Netflix, plummeted 35.12% on the New York Stock Exchange on the 20th (local time), wiping out more than $54 billion (approximately 66.69 trillion KRW) in market capitalization in a single day. This sharp decline was due to growing concerns that Netflix has hit a growth limit as it recorded a subscriber decrease for the first time since 2011.

Even billionaire investor Bill Ackman, CEO of Pershing Square Capital and known as the "Little Buffett," said, "I no longer have confidence to hold on," and sold all his Netflix shares. Ackman’s estimated loss is over $430 million (approximately 531.8 billion KRW).

◆Netflix Shock, Market Cap Evaporates by 67 Trillion KRW

On this day, Netflix closed the regular trading session at $226.19, down 35.12% from the previous trading day on the New York Stock Exchange. This is the largest single-day drop since 2004. Based on the closing price, Netflix’s market capitalization was $100.4 billion, evaporating a staggering $54 billion in one day.

This sharp decline stems from concerns over long-term growth as Netflix, which rapidly grew during the COVID-19 pandemic, recorded a subscriber decrease for the first time in 11 years. Netflix announced after the market closed the previous day that its paid subscribers decreased by 200,000 compared to the fourth quarter of last year.

Wall Street investment banks including JP Morgan, Wells Fargo, and Bank of America (BoA) also downgraded their investment opinions on Netflix one after another on this day. JP Morgan lowered its target price by 50%, warning that Netflix could hit new lows in the coming months. Pivotal Research called the first-quarter subscriber decline "shocking" and downgraded from buy to sell. Economic media CNBC reported, "At least nine banks on Wall Street have lowered their target prices."

On Wall Street, this sharp decline is even compared to the "Marlboro Friday" in 1993. When Philip Morris decided to cut the price of Marlboro cigarettes by 20%, the market flooded with doubts about the company’s long-term growth, causing the stock price to plunge 26%.

Concerns surrounding Netflix, the OTT leader, also dragged down the stock prices of other streaming companies such as Disney (-5.56%), Roku (-6.17%), and Warner Bros. Discovery (-6.04%). The Nasdaq index, which is tech-heavy, closed down 1.22% compared to the previous session on the New York Stock Exchange.

◆Dark Growth Outlook... Ackman Also Cuts Losses

The earnings outlook for Netflix is not bright. Macroeconomic conditions such as recession fears and inflation are also worsening. Peter Gani, Head of Investment Strategy at Saxo Bank, pointed out, "Subscription cancellations due to rising inflation are a bigger problem." Netflix’s stock price has fallen more than 62% so far this year.

Bill Ackman, CEO of Pershing Square Capital
Photo by Reuters

Just a few months ago, Ackman CEO had launched a large-scale purchase, saying "Netflix’s stock price drop is an opportunity," but he suddenly changed his stance based on this judgment.

In a letter sent to Pershing Square Capital investors on this day, Ackman announced that he sold all 3.1 million Netflix shares he held. He explained the reason for the sale, saying, "The news that Netflix’s subscribers decreased for the first time in 11 years was quite disappointing," and "I lost confidence in Netflix’s growth potential after this earnings announcement." He also evaluated Netflix’s decision to take additional measures such as blocking account sharing by saying, "It is uncertain whether Netflix can increase its revenue and subscribers."

Considering that Pershing Square Capital purchased Netflix shares aggressively at around $360 in January this year, the estimated loss from this sale is over $430 million. Ackman confirmed that the annual return of the Pershing Square Capital fund dropped by 4 percentage points due to the Netflix stock purchase and sale decision. Compared to the beginning of the year, it fell by 2%.