Netflix's film chief sat with the co-CEO at a Hollywood gala on Saturday night. On Sunday he was at a screening at headquarters. By Monday, Oct. 19, he was out. That's the second top creative executive gone in a week, and third-quarter earnings were due Tuesday afternoon, after our papers went to press.
We covered the 1,000 layoffs on Oct. 16. Here's what's new. Content chief Bela Bajaria was told she was out hours after the cuts she helped plan. Peter Rice, a Disney and Fox veteran, takes her chair and a global content budget of roughly $20 billion. He runs film too until a new head is named. Executives had discussed cutting up to 10% of roles before settling on 6%. Co-CEO Ted Sarandos had complained for months that Americans were watching less and that the service lacked new hits. The stock is down more than 40% from a year ago. It closed Monday at 69.85, down 0.68.
The puzzle is the business numbers. Netflix's U.S. cancel rate, 2.1% in September, is the lowest in streaming, Antenna says. The company reported double-digit revenue growth in every region in the second quarter. An internal memo says it's on track for 13-14% revenue growth and a 31.5% operating margin this year. Yet Antenna also says Netflix hadn't added net U.S. subscribers in any month this year through September. A spokeswoman called that data “not representative of Netflix's business performance.”
Heard's sleeper-hit case
Spencer Jakab at Heard on the Street looks at the same company and sees a cheap stock. The slide began last September on talk of buying Warner Bros. By February Netflix had shed nearly $200 billion in market value. It walked away when Skydance outbid it and pocketed a $2.8 billion break fee. The stock kept falling anyway and hit a two-year low this month. It has lost as much value in a year as all of Walt Disney is worth, while this year's earnings forecasts barely moved. Netflix didn't pay $83 billion for Warner Bros. It bought back some $27 billion of its own stock from 2023 through June instead. Its free-cash-flow yield just hit a 15-year high. That's the cash the business throws off, measured against its stock price. It targets about $3 billion in ad revenue this year, around 6% of the total. Jakab's close is a wink. “Try sticking with it.”
Our read
Investments and Risk, IN04, with a Behavioral lesson. Netflix (NFLX) isn't in any of our model books. The stock has dropped after each of its past five earnings reports. We don't know what Tuesday's report said, and we won't guess. What we can say is that price and business have come apart here. One is down 40%. The other grew revenue by double digits in every region. Sometimes the price is early and sees trouble the numbers haven't shown yet. Sometimes the price is just scared. Nobody knows which until later, and anyone who says otherwise is selling something.
Here's where it touches your own account. Find any stock you hold that's down 40% or more from a year ago. Then write two numbers next to it, what the price did and what the company's revenue did. If only one of them fell, you've learned something about why you own it. Don't trade into an earnings report to find out. A falling price isn't a verdict. If one of your holdings fits this picture, bring both numbers to your next review and we'll look at them together.