(April 17): Netflix Inc gave a forecast for the second quarter that fell short of analysts’ expectations, sending the shares tumbling in extended trading.
The streaming pioneer also announced that chairman and co-founder Reed Hastings is stepping down from the board after 29 years to pursue philanthropy and personal interests.
In the current quarter Netflix forecast earnings per share of 78 US cents, less than the 84 US cents predicted by Wall Street. Revenue projections for the current quarter were also tepid. Netflix said revenue would be US$12.57 billion in the three months ending in June, compared with estimates of US$12.64, according to data compiled by Bloomberg. The shares fell about 9% in extended trading after the news.
The results are the first since Netflix walked away from a contentious battle for control of Warner Bros Discovery Inc in February. The company’s shares had suffered during the months-long tussle with Paramount Skydance Corp as investors were concerned about the amount of debt Netflix would shoulder under a potential deal. Wall Street also fretted that it was a sign the company had run out of ideas.
In a letter to shareholders, co-chief executive officers Ted Sarandos and Greg Peters said Warner Bros “would have been a nice accelerant for our strategy, but only at the right price.”
Paramount snagged Warner Bros for US$110 billion, and the deal is now undergoing regulatory scrutiny in the US and Europe and faces vehement opposition from Hollywood. Netflix meanwhile walked away with a US$2.8 billion breakup fee from Paramount.
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On a call with investors, Sarandos said the bidding process taught them “so much about deal execution,” and added that mergers and acquisitions remain “a tool to help achieve our goals. As you can see with the Warner Bros deal, we’ll remain very disciplined as to how we approach it.”
Now Wall Street is looking for signs Netflix can keep subscribers engaged. The amount of time users spend with Netflix hasn’t grown in the last couple of years. Netflix raised its subscription prices in March, boosting its standard plan without ads by US$2 to US$20 a month.
Revenue rose 16% in the first three months of the year to US$12.3 billion, compared with estimates for US$12.2 billion, the company said in a statement on Thursday. Earnings per share for the quarter were US$1.23 compared with estimates of 76 US cents.
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Sarandos and Peters sought to reassure investors that they remain confident and have a plan for the future, outlining three key priorities: delivering more good programming, implementing new technologies and making more money from its members. The company plans to boost its spending on programming this year, which is a big reason its earnings for the current quarter may disappoint.
Netflix also plans to launch an updated mobile experience later this month that will include a vertical video discovery feed, which should make it easier for people to engage with its content, according to the company.
Hastings’ departure marks the end of an era for Netflix. Hastings, 65, provided the initial capital to start Netflix as a DVD-by-mail service and replaced co-founder Marc Randolph as the CEO in 1999. He guided the company through its battle with Blockbuster and was the driving force behind its move into video streaming.
Under Hastings’ leadership, Netflix introduced the streaming service to more than 190 territories, outmaneuvering Hollywood studios to build the most valuable entertainment company in the world. He stepped down as the CEO in January 2023, ceding the job to Sarandos and Peters.
“My real contribution at Netflix wasn’t a single decision; it was a focus on member joy, building a culture that others could inherit and improve, and building a company that could be both beloved by members and wildly successful for generations to come,” he said in the shareholder letter.
Uploaded by Isabelle Francis
