The Briefing

By Martin Peers

Greetings!

If you want to get under Bill Ackmans skin right nowwithout mentioning Harvard University or Business Insiderask him about his Netflix bet of 2022. The hedge fund managers decision in late January of that year to jump into Netflixs stock, just as it was getting pummeled by investors unhappy with its growth slowdown, would prove to be a multilevel disaster. Not only did Ackman fund the roughly $1.1 billion purchase by liquidating interest rate hedgeswhich meant forgoing profits from rising interest rates, he acknowledgedhe lost faith in Netflix in just three months and sold in April at a loss. Given how much interest rates skyrocketed after Ackman liquidated those hedges, he lost on both counts.

Today Netflix stock has recovered to more than $490, about 33% above where the stock was trading when Ackman bought in. If hed held on to the stake, he would now have a profit of around $375 million. This trip down memory lane isnt meant to remind the world of Ackmans missteps. He was hardly the only person who sold out of Netflix at the timethe stock kept falling for months after he exited, to a low of $167. The point is how difficult it is to predict the future, particularly when it comes to stock movements. While it was clear in mid-2022 that the market had overreacted to Netflixs slump, it wasnt obvious the stock would bounce back as much as it has. (And we should note it is still well below its all-time high of around $690 in late 2021.)

After all, while the companys top-line growth has accelerated again since late 2022, it is still growing much more slowly than it was (revenue rose 7.8% in the third quarter, less than its growth rate in the first half of 2022). Its newish ad business should help drive more growth, although Netflix faces lots of competition in that department. What is likely key to investor attitudes is that other TV companies businesses have deteriorated further, mostly thanks to their reliance on the shrinking cable TV sector. And their stocks reflect that business performance. Since the start of 2022, shares of Disney are 43% lower, prompting a rash of activists to jump into the stock, while Paramount Global shares have fallen 59%, prompting the controlling shareholder, Shari Redstone, to start looking for a buyer.

These rival companies appear to have given up on aggressively competing with NetflixDisney, for instance, has begun licensing shows to Netflix again, after pulling back on that for a couple of years. That means Netflixs advantage in streamingcemented by its strong balance sheet and profitsis only going to deepen. For investors, then, Netflix is the stock to buy for exposure to video streaming. Its a pity Ackman didnt follow his own philosophy, outlined in the letter he wrote to his investors when he bought the Netflix stake: Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon. Sounds like good advice!

The Information's Stories From This Week:

• Start your weekend reading off with Erin Woos gripping account of how Snaps $3.99 monthly subscription has taken off with teenagers but is also causing them anxiety about their crushes and the strength of their bonds with friends.
• Kate Clark was all over Khosla Ventures news this week, breaking news that Keith Rabois is returning to the fund and that the firm is leading a funding round for former Twitter CEO Parag Agrawals new startup. Cory Weinberg broke news about a different investment company, private and public company investor Vetamer Capital, which is shutting down its hedge fund.
• In the land of cybersecurity, Maria Heeter and Cory wrote about how the startup sector is so crowded that some young firms are likely to see a string of down rounds even as cybersecurity spending from governments and corporate customers soars.
• Juro Osawa and Jing Yang published a story about the former China arm of Sequoia, now HongShan, which is investing in an Nvidia challenger based in China. Its one of many investments the firm has made in China-based artificial intelligence startups working with chip technology.
• Michael Roddan took a deep dive into JPMorgan Chases apparent retreat from its competition with Stripe. The bank abruptly ended some of its payment services for several longtime customers of WePay, an enterprise payments processing company it bought roughly seven years ago but has had trouble integrating.
• For an original and insightful story on regulators clamping down on cloud providers, check out Anissa Gardizy and Aaron Holmess story from today. To entice you, heres the opening passage: To some companies, renting storage space or other services from a cloud provider can feel like theyve entered a roach motel.

In Other News

• Microsoft passed Apple in market capitalization as of Fridays close, becoming the most valuable company. Microsoft finished the day worth $2.887 billion to Apples $2.874 billion.

• Fast fashion e-commerce company Shein is trying to get approval from regulators in China as it seeks to go public in the U.S., according toReuters.
• BlackRock is buying Global Infrastructure Partners for more than $12.5 billion, giving the money manager exposure to infrastructure such as gas pipelines, mobile towers and airports (more here).
• JPMorgan Chase said profits in the fourth quarter fell 15%, but profits for the whole year rose 32% compared with 2022 (more here).

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What We're Reading

Google Will Allow More Real-Money Games on the Play Store (TechCrunch)

Why Big Tech Is Still Minding Its Bills (The Wall Street Journal)

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About Martin Peers

Martin Peers is a columnist and New York bureau chief of The Information, where he has worked since 2014. He was managing editor from 2015 through 2021. He previously worked for The Wall Street Journal and Daily Variety, among other publications. He is based in New York and is on Twitter @mvpeers.

Email Martin | Twitter (@mvpeers)