Pershing Square : Capital Management, L.P. Releases Letter to Investors

Pershing Square Capital Management, L.P. Releases Le8er to Investors

January 26, 2022, New York - // Pershing Square Capital Management, L.P. ("PSCM") today released the following leIer from Bill Ackman to investors:

Dear Pershing Square Investor,

Beginning on Friday and over the last several days, we acquired more than 3.1 million shares of NeTlix, Inc. (NASDAQ:NFLX), making us a top-20 shareholder in the company. The opportunity to acquire NeTlix at an aIracYve valuaYon emerged when investors reacted negaYvely to the recent quarter's subscriber growth and management's short-term guidance. NeTlix's substanYal stock price decline was further exacerbated by recent market volaYlity.

We have greatly admired NeTlix both as consumers and as investors, but have never previously owned a stake in the company. NeTlix is a primary beneficiary of the growth in streaming and the decline in linear TV driven by its superior customer experience, a vast and diverse amount of superb, constantly refreshed content, global improvements in bandwidth, and the proliferaYon and conYnuous improvement and convenience of devices on which one can watch.

NeTlix's business has highly favorable characterisYcs which include:

• its subscripYon-based, highly recurring revenues, which have enormous future growth potenYal
• a truly best-in-class management team and unique high-performance culture (consider NeTlix's remarkable pivot from DVD rental by mail, to video streaming, to becoming one of the greatest producers of beloved content ever)
• economies of scale and superb quality in its industry-leading content, which should conYnue to drive future growth and widen the company's powerful compeYYve moat
• pricing power derived from the enormous value it delivers to consumers compared with other alternaYves
• substanYal margin expansion, with the opportunity for conYnued improvement due to economies of scale and the company's rapidly growing, global subscriber base
• an improving free cash flow profile which should allow for conYnued investments in growth as well as the return of cash to shareholders

We began analyzing NeTlix in connecYon with our investment in Universal Music Group, so we were prepared when the stock price declined sharply last Friday. Now with both UMG and NeTlix, we are all-

in on streaming as we love the business models, the industry contexts, and the management teams leading these remarkable organizaYons.

In order to fund our purchase of NeTlix, beginning on Friday and over the last few days, we unwound the substanYal majority of our interest rate hedge generaYng proceeds of $1.25 billion. We retained interest rate swapYons that are currently out-of-the-money, and also purchased some addiYonal longer-dated,out-of-the-money swapYons. The result of all of the above is that the noYonal size of our interest rate hedge has been reduced by 80%, the term of a substanYal porYon of the hedge we retain has been extended, and our dollar investment in hedges has been reduced by more than 90%.

Had we not sold the hedge, we could have likely realized more gains based on the increase in rates, largely today, since our sale. That said, we believed the opportunity to invest in NeTlix at current prices offered a more compelling risk/reward and likely greater, long-term profits for the funds.

We invest in hedges not to protect the funds from a short-termmark-to-market loss, but rather because they can become a large source of potenYal liquidity at precisely the Yme stocks become cheap. We invest in asymmetric hedges as they offer the opportunity for large gains without exposing the porTolio to meaningful losses in the event the potenYal risk does not transpire.

We invested in out-of-the-money interest rate swapYons in December 2020 and early 2021 because we believed that it was likely that the combinaYon of aggressive fiscal policy, monetary policy, and the reopening of the economy due to vaccines would cause non-transitory inflaYon, which would require the Federal Reserve to raise rates. We believed that an unexpected rise in rates could cause a market correcYon. We viewed this outcome to be a likely one, yet the opYons we purchased implied that this scenario was very unlikely. Highly differenYated perspecYves on future outcomes can yield aIracYve payoffs for investors, parYcularly when structured in an asymmetric format.

Fortunately, all of our porTolio companies are extremely high-quality businesses that can withstand inflaYon as they have the ability to price their highly desirable products, services, and assets to preserve their profitability in an inflaYonary environment. We do not believe that the recent move in rates has had any meaningful impact on our companies' intrinsic values. As such, we believe that our porTolio companies trade at an even more material discount to their intrinsic values, parYcularly in light of recent, market-driven, price declines. While we do not know what the stock market will do tomorrow, next month or even over the next year or two, we believe that our companies will conYnue to compound their intrinsic values at high rates for the long term.

We are pleased to add NeTlix to our porTolio. Many of our best investments have emerged when other investors whose Yme horizons are short term, discard great companies at prices that look extraordinarily aIracYve when one has a long-term horizon.

Sincerely,

William A. Ackman

About Pershing Square Capital Management, L.P.

Pershing Square Capital Management, L.P. ("Pershing Square"), based in New York City, is a SEC- registered investment advisor to investment funds.

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Pershing Square Capital Management, L.P.

Francis McGill

[e-mail] 212-909-2455