Netflix’s share price has plummeted by 10% after the streamer warned that its rapid subscriber growth during the Covid-19 pandemic will slow sharply, and revealed that content chief Ted Sarandos will be co-CEO alongside Reed Hastings.
The nosedive in after-hours trading followed the release of the streamer’s Q2 results, which revealed it had added 10.1 million new subscribers over the past three months, beating its own estimates and those of analysts by at least two million.
It means the streamer takes its total global paid following to 193 million, with revenue of $6.15bn – up 25% year-on-year. Subs for the year stand at 26 million, just two million shy of its entire growth in 2019.
Predicted downturn spooks Stranger Things streamer
However, investors were spooked after the Stranger Things and Tiger King streamer said it expects new subscription growth to take a sharp downturn for the rest of the year, with just 2.5 million new additions predicted for Q3, compared with 6.8 million in the same period last year.
In its letter to shareholders, Netflix showed a graph detailing a loss in subscribers in June and admitted that “ growth is slowing as consumers get through the initial shock of Covid and social restrictions.”
That sent its stock price spiraling more than 10% to just above $470, down from $527 prior to the results, although it later rebounded slightly. Shares, which had touched $570 earlier this month, are still up more than 50% from the start of the year, even after the recent downturn.
The production hiatus caused by Covid will, however, likely help Netflix’s bottom line in the immediate future, as predicted content spending on high cost originals falls below estimates.
Analyst Paolo Pescatore, of PP Foresight, said that “the pandemic has clearly shown that Netflix is an indispensable part of viewers lives” but added that “worrying times” lie ahead as “disconnections are inevitable, which will negatively impact its bottom line.”
Pescatore added: “Its overseas markets will continue to attract new subs thanks largely to its successful partnership strategy with local telco and TV providers. Also, local broadcasters around the world will struggle to create big blockbusters due to cost reductions and a drop in advertising revenue.
“Therefore, a key focus will be on subscriber retention. While, having a broad content catalogue will put it in good stead, a slate of new shows will be paramount.
“Netflix has set the benchmark extremely high for others and has shown how to weather this crisis unlike many other media giants. All eyes are now on rivals including Comcast and Walt Disney.”
Sarandos promotion prompts Hastings speculation
The streamer also used the occasion of its Q2 results to reveal it was promoting chief content officer Ted Sarandos to become co-CEO of the company, alongside co-founder Reed Hastings.
Joining in 2000 as a DVD buyer, Sarandos helped the streaming giant’s move into original content creation, beginning with shows such as House Of Cards and Orange Is the New Black. He will continue to serve in his role as CCO of the company and was also elected to Netflix’s board of directors.
“Ted has been my partner for decades,” said Hastings. “This change makes formal what was already informal — that Ted and I share the leadership of Netflix.”
The appointment has prompted questions over Hasting’s position atop the world’s biggest streamer, although he said in a company blog he was “so excited about being at Netflix for the decade ahead.” He admitted that the changes are “part of a long process of succession planning” but said he was “committed to Netflix for the long term.”
In another rejig, chief product officer Greg Peters becomes COO, additional to his current position, with Hastings explaining that the company “wants Greg to help us stay aligned and effective as we grow so quickly around the world.”
Hastings wrote in a blog post that the changes “are part of a long process of succession planning” prompting speculation that he may be planning to step aside as co-CEO down the line.
Sarandos said he was “excited and honoured” by his promotion, adding: “My journey to co-CEO of Netflix has been as a fan of great entertainment.
“And that’s my commitment to Netflix members going forward: to keep pushing the boundaries of what a consumer-first company can achieve for people who love stories.”