Bill Ackman Is Fixing His Blunder by Buying Netflix. You Should Buy NFLX Stock Too.

Netflix (NFLX) stock rose over 5% yesterday, Aug. 13, after Bill Ackman’s Pershing Square Holdings (PSHZF) disclosed a stake in the company. Incidentally, the legendary fund manager previously exited Netflix in 2022, which was arguably a tumultuous time for the streaming giant as it lost subscribers in the first half of 2022 for the first time in a decade. It did not help that there was this brutal tech selloff that year. Meanwhile, in hindsight, exiting Netflix was among Ackman’s biggest mistakes, as not only did Pershing Square lose $400 million on that investment, but it also notionally lost out on the stellar rally over the next couple of years.

Why Ackman Invested in Netflix

In his letter, Ackman asserted that Netflix has “effectively won the streaming wars” and pointed to its 325 million subscriber base (as per the most recent update), which is almost twice that of the next two biggest competitors, namely Disney+ (DIS) and Warner Bros. Discovery's (WBD) HBO Max. He also pointed to “content discipline” and highlighted that since 2021, Netflix’s cash content spending has risen at an annualized rate of only 2%, which helped the company expand its pre-tax margins from 20% to 31.5%. He also listed strong free cash conversion, much of which the company uses for buybacks, as a reason for buying the stock. Ackman expects Netflix’s revenues to grow in double digits and sees its earnings compounding by almost 20% on margin expansion and buybacks.

Ackman also dismissed risks associated with artificial intelligence (AI) and instead sees it as an opportunity that “should meaningfully enhance the company’s content recommendation engine and ad targeting capabilities.” Ackman is also not perturbed by the recent concerns over the drop in Netflix's engagement and the competition from short-form video.

Last but not least, buying Netflix was a valuation call for Ackman, and he pointed to the compression in its price-to-earnings (P/E) multiple from over 40x to about 21x. Summing up his rationale for buying NFLX, Ackman wrote, “We believe the company’s current valuation multiple represents a substantial discount for a business with such a strong growth profile and dominant market position.”

I couldn’t agree more with Ackman on Netflix, and his investing thesis is similar to what I have been writing, including in the most recent article where I argued that the post-Q2 2026 earnings dip was actually the best time to buy NFLX stock.

NFLX Stock Forecast

The sell-side analyst community has, however, been looking the other way, and many have lowered the stock’s target price, including after the company’s Q2 earnings report. Looking at some of the recent changes, Baird lowered the stock’s target price from $120 to $90, as while the firm is constructive on Netflix’s long-term outlook, it was circumspect on its valuations. Among others, Citi lowered its target price from $115 to $110, while Goldman Sachs cut NFLX’s target price from $110 to $94. NFLX stock's mean target price is $95.09, which is over 21% higher than current prices, and it has a consensus rating of “Moderate Buy” from the 49 analysts polled by Barchart.

Should You Buy NFLX Stock?

While Netflix has rebounded from its post-earnings lows, I believe the stock is still a buy. It should continue to benefit from a rising member base and gradual price hikes and is a margin expansion story since it strives to keep content spending growth below revenue growth.

Netflix’s ad business is another growth driver, and the company expects revenues to double to about $3 billion this year. While that is less than 6% of the total revenue analysts expect the company to post this year, the contribution should rise gradually as Netflix adds more members to the ad-supported tier and monetizes its growing user base efficiently.

Over the long term, Netflix has significant untapped potential from new initiatives like video gaming, which the management sees as a $140 billion market globally (excluding ad revenues), excluding China and Russia. Merchandise sales could also start contributing significantly to Netflix’s growth as the company ramps up original intellectual property (IP). 

Finally, I believe Netflix has proven its moat, and for most users, chopping a Netflix subscription is quite down the queue even in periods of economic distress. Overall, I remain invested in NFLX stock and see it going meaningfully higher over the next couple of years on valuation re-rating.