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Netflix CEO Steps Down As Subscribers Jump

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2:37

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J.D. DURKIN: Obviously we've got the Reed Hastings headline, which I would argue kind of steals a bit more of the energy versus the subscriber growth numbers, but one or the other. Which one do you want to start with and what do you think is most significant this morning?

MARTIN BACCARDAX: Well, I'll fully confess, J.D., that I simply don't understand the market reaction to any of this. And I've been digging through it. And I don't find myself with any greater clarity. Typically when you have a situation where the founder of the company, a pioneer of the sector and the driving force of the company's image decides to step aside, you're not going to see the stock pop as a result of that. And that's exactly what happened. And this is absolutely not investors thinking, oh, great, we've got Mr. Hastings out of the way, now the company can grow. Absolutely not. There's now a significant risk with respect to leadership as a result of the void that he's going to leave behind.

Furthermore, I thought we were in the position, J.D., where we didn't care about subscriber growth anymore and we were all about profitability because adding new subscribers is increasingly expensive. Content costs are only continuing to rise. There's tons of competition. So for a streaming group to be out there culling in new viewers without adding to profit margins or profitability isn't what investors were looking for. And to that point, Netflix  (NFLX) - Get Free Report missed the street forecast for its bottom line earnings by a mile. It was down at around $0.12 per share. The street was looking for something around $0.44 per share, and this is down about 90% from the same period last year. The revenue growth, J.D., was the slowest since the company went public in 2002 and only just met Wall Street expectations. But here we are.

The stock is well higher. It's 55% higher than it was six months ago. They have some significantly, I would say, optimistic forecasts for free cash flow. They see margin improvement and they see relatively solid earnings. They didn't give us a guidance on viewers excuse me, subscriber additions, because they're not going to do that anymore. But I do say, J.D., I'm mystified as to this reaction. I think there's a ton of questions with regards to Netflix's near-term and long term future. And, you know, I guess, I'm going to have to go with the market consensus because these people know a lot more than I do. But to this point, you know, where we sit right now, I don't fully understand why the stock is as firmly higher as it is today.

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