Netflix’s Reed Hastings steps aside as co-CEO, stays on as executive chairman

Reed Hastings is stepping aside as co-chief executive of Netflix, the streaming giant said Thursday, in a significant leadership change that the company says completes its succession plan.

Hastings is now the Los Gatos company’s executive chairman. Greg Peters, Netflix’s chief operating officer, has been promoted to co-CEO, a title he now shares the title with Ted Sarandos.

In a blog post, Reed Hastings said he has increasingly delegated management of Netflix to Peters and Sarandos over the last 2.5 years.

“It was a baptism by fire, given COVID and recent challenges within our business. But they’ve both managed incredibly well, ensuring Netflix continues to improve and developing a clear path to reaccelerate our revenue and earnings growth,” Hastings said. “So the board and I believe it’s the right time to complete my succession.”

The change comes as Netflix tries to accelerate its growth, which slowed significantly last year.

The company on Thursday reported slower revenue growth for its most recent quarter as streaming services look to trim costs amid a looming recession and the company takes steps to accelerate its business by rolling out a cheaper ad-supported plan and cracking down on password sharing.

The company said its fourth quarter revenue increased 2% to $7.85 billion, missing analysts estimates of $7.86 billion. Its growth was slower than in previous quarters. Revenue jumped 6% to $7.9 billion in the third quarter. Fourth-quarter net income was $55 million, up from $607 million in the same period a year earlier.

“2022 was a tough year, with a bumpy start but a brighter finish,” Netflix said in a letter to shareholders on Thursday. “We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time.”

Netflix increased its subscribers by 7.6 million to 231 million customers during the quarter, beating analyst estimates of 4.57 million subscriber adds. Popular shows that helped draw large audiences included “Wednesday” featuring characters from the Addams Family that was released in November and the Rian Johnson murder-comedy movie “Glass Onion: A Knives Out Mystery” in December.

“Wednesday” has become the third most-watched show of all time on Netflix, viewed more than 1.2 billion hours in its first 28 days on the streaming service, according to Netflix company data, behind only “Squid Game” and “Stranger Things 4.” “Wednesday” has been renewed for a second season. Meanwhile “Glass Onion” ranked as Netflix’s fourth most popular English-language movie, drawing 273 million hours of viewing time by audiences.

The results support Netflix executives’ reassurance that their business has stabilized after losing subscribers in the first half of last year and laying off hundreds of staffers. Still, some analysts believe streaming services — once businesses of massive growth during the early days of the pandemic — may soon reach its saturation point.

Netflix and Warner Bros. Discovery are canceling shows after previously renewing them for subsequent seasons, as they look to manage costs while still appealing to audiences.

To attract cost-conscious consumers, Netflix in November rolled out a cheaper, ad-supported subscription for $6.99 a month in 12 countries. It was the first time the streamer offered ads after years of being reluctant to do so. Its competitors, including HBO Max, already offered lower cost or free video streaming options with ads.

Netflix said it was pleased with the early results from its ad plans.

Some analysts believe Netflix is well positioned because big brands will be willing to spend to get access to the streamer’s large audience. In a survey from financial services firm Cowen & Co., 41% of 50 ad buyers said they anticipate their largest client would advertise on Netflix this year.

“We view the results as positive for Netflix as the service rolls out its burgeoning ad platform and builds valuable inventory for advertisers over time,” wrote John Blackledge, a senior equity research analyst with Cowen in a research note. He has an outperform rating on the stock.

Blackledge said he views Netflix “as the best recession play in our coverage universe if macro conditions worsen, particularly as the ad tier is attractive for value conscious consumers.”

Still, some analysts are skeptical over how popular Netflix’s ad-supported plan will become. If many Netflix subscribers on the more expensive ad-free plans downgrade to the cheaper plan with ads, that could potentially hurt the company’s revenue.

“I think it remains to be seen what happens,” said Matthew Harrigan, a senior equity research analyst at Benchmark, who has a sell rating on the stock. “It isn’t like they’re doing something different than everyone else. They’re actually playing catch up on the advertising side.”

Netflix stock closed at $315.78 a share on Thursday, down 3%.