Netflix Q2 earnings: Stock plummets as Ted Sarandos is named co-CEO

Shares of Netflix plummeted following the news that chief content officer Ted Sarandos has been named co–chief executive of the streaming giant alongside Reed Hastings.

Netflix’s stock price plummeted 10% to $474 in after-hours after closing at $527.39 in regular trading. Still, including the drop, the company’s shares are up 46% for the year.

The news about the executive promotion was announced in a letter to shareholders that accompanied Netflix’s second-quarter earnings report on Thursday.

Sarandos will remain in the role of chief content officer, where he oversees the development of original programming as well as license acquisition, in addition to his new co-CEO role, Netflix said.

“Ted has been my partner for decades,” said Hastings in the letter. “This change makes formal what was already informal—that Ted and I share the leadership of Netflix.”

Boosted by the shelter-in-place orders prompted by the coronavirus pandemic, Netflix once again smashed its projections for subscriber growth, adding a second-quarter record 10 million global paid memberships for a total of 193 million. The company had given guidance for 7.5 million additions, though it cautioned that given “the uncertainty on home confinement timing, this is mostly guesswork.”

Last year, the company added just 2.7 million in the same quarter.

Some analysts had actually pegged Netflix to add nearly 15 million subscribers, close to its previous quarter haul of 15.8 million. Still, Netflix more than doubled its subscriber growth in the first half of this year compared with 2019, with 26 million this time around versus 12 million last year.

“As a result, we expect less growth for the second half of 2020, compared to the prior year,” Netflix warned.

That warning, including that the company expects to only add 2.5 million new subscribers in the third quarter, helped spark the huge stock selloff. Wall Street had predicted far more new subscribers.

Revenues for the quarter came in at $6.15 billion, a year-over-year increase of 25%. That beat Wall Street consensus estimates of roughly $6.05 billion. Profits more than doubled from the same period a year earlier to $720 million or $1.59 per share. That was below analyst forecasts for a $1.81 per share profit.

Netflix said it was unconcerned about coronavirus production delays owing to a long lead time for content. The 2020 slate is not expected to change, whereas Netflix anticipates the second half of 2021 to see its bigger releases—though the company said the total number of originals for next year will still be higher than this one. In some places, like Asia and Europe, production has gradually resumed.

The company also commented on the competition, noting the likes of HBO Max, Disney+, and NBCUniversal’s newly launched Peacock. Netflix also acknowledged the war chests of Apple and Amazon, as well as the “astounding” growth of TikTok.

“Instead of worrying about all these competitors, we continue to stick to our strategy of trying to improve our service and content every quarter faster than our peers,” Netflix said.

Said eMarketer forecasting analyst Eric Haggstrom: “Netflix added 25.9 million new worldwide subscribers in the first half of 2020, just 2 million short of their total additions in all of 2019. Even though growth should slow in H2, Netflix is already well ahead of pre-pandemic predictions.

“The pandemic and associated lockdowns have massively accelerated the shift from linear TV to streaming video,” he added. “Looking forward, even as lockdowns are relaxed and new competitors begin to scale their services, Netflix will extend its lead as the first stop for entertainment.”