Netflix’s Reed Hastings to leave role as co-CEO, become executive chairman

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Netflix Inc. added more subscribers than expected in the final quarter of 2022, sending shares higher in after-hours trading Thursday even as founder Reed Hastings prepared to step down from the chief executive role he has held since the company’s inception.

Netflix NFLX, -3.23% announced that Hastings has moved to an executive chairman role, while Chief Operating Officer Greg Peters moves up to co-CEO, joining Ted Sarandos.

“Since Reed started to delegate management to us, Greg and I have built a strong operating model based on our shared values and like-minded approach to growth,” Sarandos said in a letter to shareholders. “I am so excited to start this new chapter with Greg as co-CEO.”

In a separate letter, Hastings said “in the last 2½ years, I’ve increasingly delegated the management of Netflix” to Sarandos and Peters.

“It was a baptism by fire, given COVID and recent challenges within our business. But they’ve both managed incredibly well, ensuring Netflix continues to improve and developing a clear path to reaccelerate our revenue and earnings growth,” Hastings wrote. “So the board and I believe it’s the right time to complete my succession.”

“More and more, they’ve been running the company,” Hastings said in a video call late Thursday. He called the move 10 days in the making.

The company revealed on Thursday fourth-quarter revenue of $7.85 billion, compared with $7.71 billion a year ago. Earnings were $55 million, or 12 cents a share, down from $607 million, or $1.33 a share, last year; the decline was due to a $463 million noncash charge related to debt held in Europe, executives said.

Wall Street analysts tracked by FactSet had estimated revenue of $7.86 billion on earnings of 55 cents a share. Shares increased more than 6% in after-hours trading immediately following the release of the results, after closing with a 3.2% decrease at $315.78.

The streaming-video company reported that it added 7.7 million subscribers in the final three months of the year; analysts had expected 4.58 million, according to FactSet. Netflix will no longer offer guidance on that statistic, which has typically moved Netflix shares more than any other metric.

In October, Netflix executives predicted the company would add a net 4.5 million subscribers in the fourth quarter as it bounces back from a lull in growth. Netflix reported losses in subscribers for the first two quarters of 2022, prompting leaders to unveil an ad-based service in November for customers who want to pay less, and plans to crack down on password sharing.

“2022 was a tough year, with a bumpy start but a brighter finish,” executives wrote in their letter to shareholders Thursday. “We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.”

Executives guided for 4% revenue growth year-over-year in the first quarter, which would suggest roughly $8.2 billion in sales, while analysts were projecting $8.15 billion on average, according to FactSet. Executives said they “expect constant currency revenue growth to accelerate over the course of the year,” but that the password-sharing crackdown they expect to roll out widely in the first quarter could cause some bumpiness early in the year.

Don’t miss: Netflix will crack down on password sharing — here’s how it will work

“From our experience in Latin America, we expect some cancel reaction in each market when we roll out paid sharing, which impacts near-term member growth,” they wrote. “But as borrower households begin to activate their own stand-alone accounts and extra member accounts are added, we expect to see improved overall revenue, which is our goal with all plan and pricing changes.”

The video-streaming pioneer offered first-quarter earnings guidance of $1.28 billion, or $2.82 a share; FactSet analysts are forecasting $2.98 a share.

Netflix’s results arrived in the wake of increasingly bullish research notes. At least two analysts this week raised their price targets on Netflix shares, citing a weaker dollar. Truist analyst Matthew Thornton jacked his target to $339 from $210 while maintaining a hold rating, and UBS’s John Hodulik lifted his price to $350 from $250.

For more: In Netflix’s unpredictable finale, the focus is on financial estimates

“We view Netflix as one of the most durable businesses in our coverage as subscription low-cost entertainment with little-to-no exposure to advertising (still very small/new in 2023) or other highly cyclical/macro sensitive revenues,” Truist’s Thornton wrote. “While there could be some pressure on churn and gross adds (as households tighten budgets), we think this should be at least partly offset by increased cord-cutting (going 100% streaming from more expensive linear TV bundles).”

Optimism was not universal, however. Barclays analyst Kannan Venkateshwar expected Netflix to add roughly half the new subscribers executives had forecast, 2.7 million, based on a drop in app downloads.

Netflix’s stock has plunged 38% over the past 12 months. The broader S&P 500 index SPX, -0.76% has declined 13% over the past year.

This article was originally published by Marketwatch.com. Read the original article here.

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