Pershing Square Q3 Earnings Call Highlights

Key Points

• Pershing Square sees upside in several holdings, arguing investors may be underestimating growth at Amazon and Microsoft’s cloud businesses despite strong results. The firm also praised Visa, Mastercard, Uber and Netflix, and cautioned that short-term share-price moves can reflect capital flows rather than business fundamentals.
• Howard Hughes plans to shift toward an asset-light real estate model and expand its insurer, Vantage. It aims to sell 80%–90% stakes in some properties to long-term investors and use more capital to build the insurance business, which Pershing Square believes could deliver returns on equity above 20%.
• Pershing Square remains focused on permanent capital, with 96%–98% of fee-paying assets in that structure and $24 billion in fee-paying AUM at the time of the call. The firm is preparing to launch Pershing Square Ventures and an asymmetric strategy without expecting to expand its nine-person investment team.

Pershing Square NYSE: PS CEO Bill Ackman and Chief Investment Officer Ryan Israel said the investment firm sees value across several portfolio holdings following recent earnings reports, while also outlining its approach to permanent capital, new fund launches and the transformation of Howard Hughes.

During the firm’s third-quarter question-and-answer session, Israel said Visa and Mastercard had performed strongly following earnings, while he argued that market reactions to results from large technology and cloud companies did not fully reflect their business momentum.

Israel pointed to Amazon’s discussion of potential cloud-business revenue growth above 40% in future years and Microsoft’s expectation for Azure growth above 50% in the following quarter. He said Pershing Square believes the market is underestimating the opportunity in hyperscale cloud businesses, even though the companies’ reported results were “nothing short of phenomenal” in his view.

Ackman said short-term trading activity can be influenced by sector rotations, fund withdrawals and other capital flows. He cautioned against judging a company’s prospects based solely on its share-price movement in the days immediately after an earnings release.

Uber, Netflix and Portfolio Engagement

Ackman described Pershing Square as an engaged shareholder, saying the firm regularly shares ideas, advice, input and criticism with portfolio companies even when it is not conducting a public activist campaign. He said Pershing Square views both Uber and Netflix as exceptionally well-run companies.

On Uber, Israel said the firm sees autonomous vehicles and robotaxis as a potential benefit rather than a threat to the company’s marketplace. He said additional autonomous-vehicle supply could reduce rider wait times and prices, while Uber’s existing network of riders and drivers provides a strong platform for aggregating supply and demand.

Israel also cited the practical logistics involved in operating fleets, including cleaning vehicles, storing cars and returning lost items. He said autonomous vehicles could help address periods of peak demand, while their high cost makes it important for fleet operators to maintain high utilization. Uber has partnerships with more than a dozen autonomous-vehicle companies, he added.

Regarding Netflix, Ackman said the streaming service still provides substantial content value at its ad-free subscription price of about $20 per month, while lower-cost advertising-supported plans are available for roughly $8 or $9 per month. He said the company has been cautious about the amount of advertising shown to users.

Israel said Pershing Square evaluates Netflix partly on pricing per hour of viewing, arguing that subscribers spend more time on Netflix than on competing subscription services. He also noted that Netflix said its churn rate improved year over year during the third quarter, which he characterized as an important indication of customer retention.

Howard Hughes Capital Allocation

Ackman said Howard Hughes is pursuing a strategy of reducing the amount of capital it commits directly to real estate projects and deploying more capital into its insurance operation, Vantage. He said the company has historically funded nearly all of the equity in its real estate transactions and used debt conservatively, an approach he said has constrained after-tax returns on equity for a C-corporation.

The company plans to sell 80% to 90% equity stakes in certain assets to long-term investors such as pension funds and family offices, according to Ackman. He said the strategy is intended to generate management and incentive fees, improve returns on capital and allow Howard Hughes to pursue more development opportunities using outside investors’ capital.

Pershing Square does not believe stock repurchases are currently the best use of Howard Hughes capital, Ackman and Israel said. Israel said the firm estimates Howard Hughes’ net asset value in the low $100s per share, compared with a share price just below $80, but believes a dollar invested in the insurance operation could ultimately create more value if the business reaches the firm’s target of more than a 20% return on equity.

Ackman said building the insurer’s capital base is also important for credit ratings and financial strength. He said the long-term goal is for investors to view Howard Hughes as an insurance holding company with investments managed by Pershing Square and a higher-return real estate operation.

Permanent Capital and New Strategies

Asked whether Pershing Square could accept redeemable capital as it expands its retail products, Ackman said the firm is not interested in raising open-ended fund capital. He said approximately 96% to 98% of its fee-paying assets under management are permanent capital and that the firm’s focus remains on permanent-capital models.

Ackman said Pershing Square had $24 billion in fee-paying assets under management at the time of the call, up $1 billion from the end of September due to investment performance. He said the firm’s primary driver of long-term value is performance and the compounding of the assets it already manages.

The firm is preparing to launch Pershing Square Ventures and an asymmetric strategy, but Ackman said the initiatives are not expected to require a larger investment team. Pershing Square has nine investment professionals, including Ackman, covering a portfolio of roughly 14 companies, he said.

Pershing Square Ventures will seek private businesses that could become strong public companies, and Ackman said the firm may retain investments after a portfolio company goes public. Israel added that researching private companies can improve the firm’s public-market investing by providing insight into emerging competitive risks and opportunities.

Other Holdings and Market Views

Israel said Pershing Square’s investment in Alcon followed years of research after the company’s separation from Novartis. He said Alcon was trading at about 17 times earnings, down from a high-20s earnings multiple several years earlier, despite business progress that Pershing Square views favorably. The firm expects the company to grow earnings per share at a mid-teens annual rate over the next three to five years, Israel said, while noting potential upside from smaller drug-development efforts.

On Brookfield, Ackman said the firm values its asset-management business and its track record in real estate, infrastructure, power and data-center-adjacent businesses. Israel said Brookfield has historically exceeded the multiyear objectives it lays out at annual shareholder meetings. Pershing Square estimates Brookfield could grow earnings per share at about 20% over the next three to five years, compared with management’s own outlook of roughly 24% to 25%.

Israel also addressed spending on artificial-intelligence infrastructure, saying Pershing Square expects hyperscalers’ data-center investments to produce pretax returns on capital of about 15% to 25% for compute-capacity rentals, with potentially higher returns from software and other value-added services. The firm will monitor revenue growth and profit margins to assess whether returns are materializing.

Ackman said Pershing Square is also examining whether a dividend could help narrow the discount at which Pershing Square USA trades. Separately, he said the firm continues to seek a suitable transaction for Pershing Square SPARC Holdings, its acquisition vehicle, but has not yet found a company and terms that meet its requirements.

About Pershing Square (NYSE:PS)

Pershing Square Holdings, Ltd. is an investment holding company that seeks long-term capital appreciation through a concentrated portfolio of investments in publicly traded companies. The company is managed by Pershing Square Capital Management, L.P., an investment management firm that typically takes significant positions in a limited number of businesses and engages with their management teams and boards.

Pershing Square's investment approach emphasizes fundamental research, long-term ownership and active involvement with portfolio companies.

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