Netflix founder Reed Hastings resigns. This is what it means for stocks.

netflix (NFLX 6.53%) The stock surged 7% after hours last night after the streaming leader announced a significant increase in subscribers in its fourth-quarter earnings report and provided promising guidance for 2023. The 7% gain remained intact in Friday morning’s session.

But the real news was that co-founder Reed Hastings stepped down as co-CEO and moved to the executive chair position. Greg Peters has been promoted from his COO to Co-CEO, and as Chief Content Officer he shares leadership with Ted Sarandos.

Since its inception in 1997, Hastings has led the company through its early days as a DVD mail company, its evolution into streaming and its growth into the media powerhouse that transformed Hollywood. In the process, he’s delivered staggering returns to investors, with stock prices rising more than 27,000% since his 2002 initial public offering. That means his annual growth rate is 31%.

In addition to these achievements, Hastings is considered a visionary in the field, seeing more than anyone else the potential to transform the streaming industry into its current form and disrupt the linear TV ecosystem. . In 2015 he said: As co-CEO Ted Sarandos put it on a recent earnings call, “Reed could see every corner.”

Image Source: Getty Images.

transition

In a letter to shareholders, the company said that with Hastings as chairman and Peters as co-CEO, the company’s “succession process” was complete. Still, the company has never publicly discussed Hastings’ departure.

Sarandos became Co-CEO in July 2020. This is the first step in succession planning, and the leader said Sarandos and Peters have been successfully handling day-to-day operations for some time. The company said the decision formalizes what the company has already done internally. Explaining why it was the right time to make the transition, Hastings simply said he was ready. At 62, he is approaching the traditional retirement age as well.

Hastings added that the three had worked together for 15 years and had complete confidence in their leadership. In his blog post, he said, “I look forward to working with them in this role for many years to come.

What it means for investors

It’s too early to know how Hastings’ departure will affect the company, but it’s clear that Sarandos and Peters have a big responsibility. Hastings is not only admired on Wall Street, but he seems to be respected by Netflix executives and files as well. On his job review site, Glassdoor, he says 89% of respondents recognize him as his CEO, and the company ranks him 40th on the site’s list of best places to work. . Netflix is ​​also known for its unique and now widely imitated management philosophy developed under Hastings.

His departure from the CEO position comes at a time when the company is at a critical crossroads. We just launched our ad tier and are rolling out new paid sharing features, so we expect to see more revenue. But the company also faces a slew of new competitors, a mature North American market and slowing growth. Fourth quarter earnings were up just 2%, and on a currency neutral basis he was up only 10%.

Bob Iger’s recent return Walt Disney It’s also a reminder that CEO changes don’t always go according to plan. Amazon Employees are also reportedly eager for the return of Jeff Bezos.

Netflix executives said there wouldn’t be a change in strategy with the transition, and Hastings said he was still heavily invested in the company’s success, more involved than a typical executive chair. It shows potential, which bodes well for investors.

With Hastings’ blessing and training, Sarandos and Peters deserve investor confidence, but shareholders should watch their performance. The company’s guidance for 2023 was strong, requiring free cash flow to nearly double to $3 billion, but things are changing fast in the streaming sector, and for Netflix to stay on top of the industry. will require the kind of foresight that Hastings brought.