”Incoming Co-CEO Greg Peters will have a number of major decisions on his plate,“ one analyst told TheWrap
Reed Hastings — one of Netflix’s founders over 25 years ago who ushered the company from mail-order DVD service to the world’s first streaming network — signaled the end of an era on Thursday after revealing he would transition into the role of executive chairman and hand off Netflix’s co-CEO reins to chief operating officer Greg Peters.
After a couple wobbly quarters in early 2022, the world’s No. 1 streamer has somewhat recovered. That gives Hastings an opportunity to move out of the co-chief job a hero (or pull an “Iger” as some have referred to it). But that leaves a ton of work for standing co-CEO Ted Sarandos and incoming Peters.
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On Netflix’s earnings call, Hastings touted the company’s “good head start” over its streaming competitors, adding that the streamer continues to make “super progress.” In its fourth quarter of 2022, Netflix blew its 4.5 million subscriber projection out of the water — instead adding 7.66 million subscribers for a global total of 230.75 million.
“The key was retention. Fewer people churned out than normal, probably because the [$6.99 per month] ad-supported tier gives users a lower-priced option,” Wedbush Securities analyst Michael Pachter told TheWrap. “Their content was really good during the quarter, and they spread it out nicely to keep people engaged. All these things contributed to a great subscriber figure.”
But while Hastings is stepping away from the helm of Netflix on a high note with regard to subscribers, his successors still have their work cut out for themselves and a troubling economic climate that has yet reached its prime.
Despite the subs win, Netflix missed on its earnings per share, posting 12 cents compared to Wall Street’s expectation of 54 cents. Meanwhile, revenue came in line with estimates at $7.85 billion, but only marked growth of 1.9% year over year. Though Netflix’s stock has climbed about 7% year to date following the earnings announcement, shares are still down approximately 38% in the past year, as of market close on Thursday.
“Reed Hastings stepping down from his current role raises a lot of questions about Netflix’s future strategy. While the subscriber growth numbers are encouraging, revenue growth is sluggish with the backdrop of a potential recession looming on everyone’s mind,” Third Bridge analyst Jamie Lumley told TheWrap in a statement. “Incoming Co-CEO Greg Peters will have a number of major decisions on his plate from managing high levels of expenses, password sharing and cracking the code to find the next ‘Stranger Things.’”
When asked about the company’s future strategy, Peters said he would follow Hasting’s model of “continually seeking excellence” and emphasized that there’s “no big strategy shift or big culture shift” planned.
“We look forward to taking things forward as we have been for the last little bit and responding to a dynamic industry and doing the changes that we think are appropriate,” Hastings noted during the pre-recorded earnings call on Thursday. “But we don’t have a bank of changes that we’re we’ve been holding for this moment. So mostly it’s continuity and move forward.”
Looking ahead, Netflix’s long-term financial objectives include sustaining double-digit revenue growth, expanding operating margin and delivering growing positive free cash flow. The company anticipates revenue growth of 4% year over year in the first quarter of 2023 and at least $3 billion in free cash flow, as well as an operating margin of roughly 21% to 22% for fiscal year 2023.
In order to reach those financial objectives, Netflix plans to continue growing its advertising business and launch paid sharing later this quarter to crack down on an estimated 100 million households sharing passwords.
“Despite macroeconomic clouds looming over the ad industry, I expect advertisers seeking the chance to reach younger viewers who have abandoned traditional television will likely allocate a greater part of their marketing budget to advertise on Netflix in the future,” Investing.com senior analyst Jesse Cohen told TheWrap.
On the content side, the company has elevated Bela Bajaria and Scott Stuber to chief content officer and chairman of Netflix Film, respectively, and plans to continue expanding its games offering in 2023, with a focus on Netflix-related IP. Additionally, Netflix will begin experimenting with live programming, partnering with Chris Rock on a standup special in 2023.
“It’s certainly not goodbye. I’m heavily invested in Netflix success… but it’s time for Greg and Ted and the team to lead,” Hastings concluded. “Overall, I would say our first 25 years were good and I’m super excited about Netflix’s next 25 years being great under our broadened leadership team. Pleasing our shareholders and members is so satisfying and I just want to thank all of you for your support and look forward to continue more progress.”
Lucas Manfredi
Lucas Manfredi is a TV Business reporter with TheWrap. He has a Bachelor of Science in Television-Radio from Ithaca College. He can be reached at lucas.manfredi@thewrap.com.