Netflix: Ted Sarandos Named Co-CEO, 10 Million New Subscribers, Free Cash Flow Hits Nearly $900M (NFLX)

By Amit Chowdhry ● July 17, 2020
  • Netflix announced that added 10 million net new global subscribers in the last quarter and named Ted Sarandos as co-CEO. And the company revealed that it hit nearly $900 million in free cash flow.

Netflix Inc (NASDAQ: NFLX) announced that it added 10 million net new global subscribers in the last quarter. This was largely driven by shelter-in-place orders associated with the COVID-19 pandemic.

The company’s net subscriber additions were above the expectations of 8.26 million for the second quarter. However, Netflix said that it is expecting to add 2.5 million net new subscribers in the third quarter. This caused the company’s stock price to drop over 11% during after-hours trading.

“We live in uncertain times with restrictions on what we can do socially and many people are turning to entertainment for relaxation, connection, comfort, and stimulation,” said Netflix in a statement. “In Q1 and Q2, we saw significant pull-forward of our underlying adoption leading to huge growth in the first half of this year.”

In the first half of the year, Netflix added 26 million paid memberships. And that was close to the 28 million that Netflix added as a whole for the year 2019. But this level of growth would likely not be possible for the second half of the year.

“As we navigate these turbulent circumstances, we’re focused on our members by continuing to improve the quality of our service and bringing new films and shows to people’s screens,” said Netflix co-CEO and co-founder Reed Hastings.

Netflix’s net profit increased to $720 million from $271 million. And for the quarter, Netflix reported the earnings per share of $1.59 — which was below Wall Street expectations.

The revenue for the quarter was $6.15 billion, up 25% from the same period one year earlier. And the operating income nearly doubled to $1.34 billion.

Netflix’s free cash flow (cash that a company produces through its operations after the cost of expenditures on assets) hit nearly $900 million. That is up from negative $594 million a year earlier. The pause in production associated with the pandemic is going to push Netflix’s cash spending on content to the second half of the year.

In terms of cash and equivalents, Netflix ended the second quarter with over $7 billion. And Netflix also has an undrawn $750 million credit facility.

Management Changes

Netflix announced that chief content officer Ted Sarandos was named co-CEO along with Netflix founder and chairman Reed Hastings. Sarandos will also continue to serve as the chief content officer of the company.

“This change makes formal what was already informal — that Ted and I share the leadership of Netflix,” explained Hastings.

Sarandos and Hastings met back in 1999 after Hastings read an article in Video Business.

“When Reed and I first met over 20 years ago, he described Netflix almost exactly as it now works,” commented Sarandos in a statement. “But at the time, I was skeptical. The internet was still new and Netflix’s main competitor, Blockbuster, was huge and had completely disrupted the business model of my previous company. Part of Reed’s brilliance is his persistence and so I eventually said yes, back in 1999.”

Netflix also revealed that chief product officer Greg Peters is being promoted to the chief operating officer along with retaining the role of chief product officer.

In an interview with Bloomberg, CFRA analyst Tuna Amobi said that investors have been wondering about succession plans in case Hastings steps down. During the earnings call, Hastings said that he has no plans to retire any time soon though.

“Let me be really clear on that: I’m in for a decade,” responded Hastings when asked about plans about scaling back his role.