Ethan Miller
Netflix stock (NASDAQ:NFLX) had risen to a 6.3% postmarket gain after surprisingly strong subscriber gains and revenues in line with Street expectations, as it kicked off its quarterly executive interview, with questions swirling around potential new revenue streams.
“It feels like yesterday was our IPO. We were covered in red envelopes; we IPO’d at about $1. Hopefully some of you have held the stock the full 21 years,” said co-founder Reed Hastings, who’s departed his co-CEO position to become executive chairman, handing leadership off to co-CEOs Ted Sarandos and Greg Peters.
Hastings’ succession move (which interviewer Jessica Reif Ehrlich of BofA called “maybe the smoothest transition we’ve seen in media for quite a while”) raised the question of whether strategy change was ahead, and the message was: We’ve been working this strategy a while.
“We’ve always been focused on the future and where the consumers are going” – toward streaming, Sarandos said, re-emphasizing that the execs see Netflix’s market age as its “infancy.”
“As big as we’ve become … we’re about 8% of TV time still, so it’s an enormous amount of growth ahead, even in market where we are very well established,” Sarandos said.
Turning to the advertising service tier, which launched at a lower price point Nov. 3, “we’ve learned a bunch already,” Peters said. “The tech is all working; the product experience is good.” Engagement for ad-plan users is similar to that on the ad-free plans, Peters says, and “take rate and growth” are solid. There’s more to do on validation/measurement and relevance, he added.
Hulu (DIS) (CMCSA) is a model and “they’ve had a 10-year head start,” Hastings noted. Roughly half of Hulu’s membership is on the ad tier, Chief Financial Officer Spence Neumann pointed out. “We’re not gonna be larger than Hulu in year one, but hopefully over the next several years, we can be at least as large.”
Reif Ehrlich noted that linear TV’s $50B-$60B ad business is the “easy money,” while the digital pool is much larger. Does Netflix still think it will be “incredibly difficult” to compete with the likes of Google (GOOG) (GOOGL) and Meta Platforms (META)?
Linear TV is the target at first, Peters said. “Now, I think we can layer into that, over time, components of what has made digital advertising so attractive,” noting that its users are 100% signed in and fully addressable. Investor Relations VP Spencer Wong notes the branded video ad market the company will pursue is about $180B globally (ex-China and Russia).
As for jumping into free ad-supported TV (FAST), the company’s open to different models but “we’ve got a lot on our plate this year,” Sarandos said.
In an SEC filing, the company detailed the executive change and said that in his new role as co-CEO, Peters would receive an annual salary of $3M with an annual stock option allocation of $17.325M, and an estimated target bonus of $14.325M. Peters also joins the board.
As executive chairman, Hastings will receive an annual salary of $500,000 with no target bonus, and a stock option allocation of $2.5M.