- Netflix shares fall nearly 10% in pre-market trading after Q2 earnings guidance falls short of analyst expectations
- Chair and co-founder Reed Hastings to leave the company
- Streaming giant set to launch vertical video on mobile phones as competition heats up from social media platforms
Dan Coatsworth, head of markets at AJ Bell, comments:
“The architect of Netflix’s success was meant to leave on a high, but Reed Hastings is departing on a sour note. Despite gaining credibility for refusing to overpay for Warner Bros Discovery, Netflix’s decision to go it alone has been followed by a few bumps in the road.
“The streaming giant’s forward earnings guidance isn’t as strong as analysts expected, wiping £44 billion off the company’s market value in pre-market trading. It guided for 78 cents earnings per share for the second quarter, which is 7% below the consensus forecast of 84 cents per share.
“While some of that valuation decline will also be investor disappointment at Hastings leaving the business, it’s fair to say that Netflix is not usually in the habit of coming up short with earnings strength.
“Netflix was meant to come out fighting after showing acquisition discipline. It could have easily paid whatever was needed to scoop up Warner Bros, yet it didn’t get carried away. Buying that business would have greatly strengthened its content library and production capabilities. Choosing not to proceed shifted the focus back onto organic growth and many investors will have expected business to be booming if Netflix felt happy to go it alone.
“The earnings guidance has fallen short, reminding the market that Netflix still must work hard to take two steps forward.
“The imminent launch of vertical video is an interesting move, appealing to people who might spend hours scrolling on TikTok or Instagram on their phone and prefer to hold their device in that orientation. This could drive more engagement for certain types of customers, and that could feed into greater income for Netflix if it serves up more advertisements. It could also see Netflix push more into the world of podcasts, broadening its content choice.
“Social media platforms including TikTok and YouTube have become serious competition for Netflix, and it needs to fight back. That’s why it is exploring changes like vertical video, pushing even harder on games, and spreading its wings with a wider range of sports. Netflix is no longer just a home to TV shows and films, and that’s a deliberate decision to help broaden the platform’s appeal.
“Reed Hastings might argue he has helped to build a formidable empire in the modern media world. And he’d be right. While there is a negative market reaction to the latest set of results, fundamentally Hastings has helped Netflix disrupt the media universe and take eyeballs away from linear TV and the cinema industry.
“Hastings always intended to build a business that would outlast him, and that has been achieved.”