Investors couldn’t wait to get rid of Reed Hastings as the joint boss of Netflix judging by the share price reaction to the news of him stepping down. A 7% jump in after-hours trading is the market’s way of saying it was time for someone new to help steer the ship.
While Hastings stays on as executive chairman, the market is more focused on the day-to-day running of the business and the decisions needed to inject more life into the company and how that might translate into share price growth.
AJ Bell’s Russ Mould said: “The timing is interesting, coinciding with better-than-expected subscriber growth figures as both the Addams Family spin-off, Wednesday, and the Harry & Meghan documentary were smash hits. This bit of good news is certainly responsible for some of the share price jump, but there is no denying that now feels the right time for someone new to make the big strategic decisions.
“Chief operating officer Greg Peters will step up to become co-chief executive alongside Ted Sarandos. Apart from driving take-up of the advertising-funded subscription tier for people more concerned about price than a seamless viewing experience, among the priority issues on their agenda will be decisions on production strategy and programme marketing.
“Netflix has been chasing quantity over quality for its content and has gained a reputation for being the home of the duds. Might it be better off focusing on shows that really satisfy the viewer and make them want to come back for more?
“It has invested in so many TV series and films that just pop up on its platform without viewers having even heard a wink about them pre-release. It seems a bizarre strategy not to invest in promoting all its shows, rather than simply focusing on a select few like Wednesday. More people realising what is available might lead to better subscriber growth figures. That strategy would push up marketing costs, but the payback might be worth it.
“As part of the ‘out with the old, in with the new’ focus for the business, it will no longer give subscriber guidance. Netflix is now focused on revenue as the key performance metric instead of membership growth. That plays to a strategy of trying to commercialise more of its intellectual property, as well as generate advertising revenue from the new subscription tier.”