Netflix's next chapter
Why it matters: After a decade of consistent growth under co-founder Reed Hasting's leadership as chief executive, the company now must pivot its strategy to take on a more competitive and turbulent streaming landscape.
Driving the news: Netflix on Thursday surprised Wall Street when it announced that Hastings is stepping down as co-CEO of the streaming giant and becoming executive chairman.
- As part of the leadership change, Netflix co-CEO Ted Sarandos will be joined by a new co-CEO — current chief operating officer Greg Peters.
Be smart: Hastings has led the company for 25 years, and has been the chief architect of some of its most critical moves — most notably, its transition from DVDs to streaming.
- His role change means Netflix won't be led day-to-day by a founder. That's a shift other tech giants that share Netflix's 1990s origins have made in recent years, including Amazon and Google.
Details: On an earnings call Thursday, Netflix executives tried to assure Wall Street that Hastings' move wouldn't mean massive changes.
- "There's no big strategy shift or big culture shifts," Peters said. "We don't have a bank of changes that we have been holding for this moment. So mostly it's continuity and moving forward."
But investors had mixed reactions to the news and the company's fourth quarter results. Despite crushing Wall Street expectations on subscriber additions, Netflix missed expectations on earnings.
- Last year, Netflix said it no longer wanted to be valued based on subscriber additions, but rather its revenues and profitability.
The big picture: Increased competition has forced Netflix to reimagine its business plan and invest in new growth areas like gaming, original films and advertising.
- Now that Wall Street wants streaming providers to focus on making money over subscriber growth at all costs, Netflix is hoping that those new areas of investment will help it become more profitable long-term.
What to watch: Netflix offered few details about whether its new ad-supported tier — which debuted in November — has so far paid off, but executives said they were optimistic about the program.
The bottom line: Netflix spent years differentiating itself from other entertainment companies by acting like a grow-at-all-costs tech firm. Now, under a new leadership team, it's trying to differentiate itself from its streaming rivals by acting like a blue chip company with a focus on profitability above all.