Billionaire Bill Ackman Just Invested 5% of Pershing Square Capital Management's Portfolio in Netflix. Should Investors Follow Suit?

When it comes to investing pedigree, Bill Ackman has earned his stripes. The well-known activist investor heads up Pershing Square Capital Management -- the hedge fund he founded -- with roughly $23 billion in assets under management. His hedge fund strategy is unique. He acquires sizeable stakes in just a few stocks and holds them for years. That approach has been remarkably successful. Pershing Square gained 34% in 2025, doubling the 17% gains of the S&P 500. That's not a one-off. Over the past eight years, Pershing has returned 23% annually, far outpacing the S&P's 14% gains.

Thanks to his impressive track record, investors pay close attention when Ackman adds a stock to Pershing Square's portfolio. He turned heads this week when he revealed a sizeable stake in streaming giant Netflix (NASDAQ:NFLX).

Investors are taking a fresh look at this well-known company and asking themselves the quintessential investing question: Is it time to buy Netflix stock?

Image source: Netflix.

A big bet

Ackman unveiled the news in a shareholder letter on Pershing's website. The billionaire reportedly owns 3.15 million Netflix shares, representing 4.9% of the hedge fund's portfolio, acquired during what was a tumultuous second quarter for the streamer.

The hedge fund manager shares a compelling case for owning Netflix stock. Ackman points out that Netflix is a "dominant global streaming platform with over 325 million subscribers," which is "nearly double the combined base of its two closest competitors, Disney+ and [Warner Bros. Discovery's] HBO Max." Furthermore, he cites several key points of his investing thesis:

• Netflix can outspend rivals on content while spreading the cost across the industry's largest user base.
• Netflix now converts approximately 90% of earnings into free cash flow.
• Advertising has scaled rapidly toward $3 billion of revenue this year, and its lower-priced ad-supported tier broadens the addressable market among price-conscious consumers.
• Live programming represents a small fraction of watch time yet is instrumental in driving signups and retention.
• Ackman expects Netflix to compound revenue at a double-digit rate, with slowing content spend driving margin expansion.

Netflix was a pioneer and popularized the concept of streaming video. The company also has a treasure trove of nearly two decades of granular data, which helps inform Netflix's licensing, buying, and production decisions. Despite its notable advantages, investor fears about plateauing engagement trends have crushed the stock, which remains 42% off its peak (as of this writing).

As Netflix notes in the company's Q2 shareholder letter, "not all hours are equal." Management goes on to say that "time spent is just one aspect of strong engagement," and Netflix continues to focus on high-quality programming, a wide variety of shows, and the quantity of hours watched. In the first half of 2026, members watched 97 billion hours, up 2% year over year -- despite tough competition from the Winter Olympics and World Cup. This shows that engagement remains healthy.

Netflix has a strong track record of double-digit revenue growth and expanding profit margins, driven not only by subscriber growth and price increases but also by rising advertising revenue. Furthermore, content amortization is higher in the first half of the year, suggesting strong operating income growth in the second half.

Finally, Netflix is a bargain right now. The stock is currently selling for less than 25 times earnings, a far cry from its five-year average multiple of 40. This gives astute investors the opportunity to buy shares at a discount.

Danny Vena, CPA has positions in Netflix and Walt Disney. The Motley Fool has positions in and recommends Netflix, Walt Disney, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.