Netflix Plunges on Dim Subscriber Outlook; Sarandos Named Co-CEO

Ted Sarandos was just named co-chief executive officer atNetflix Inc. and already he faces a difficult task: soothing investor anxiety about its slowing growth rate.

The companytapped the longtime chief content officer to take the top job, alongside current CEO Reed Hastings, on a day when it delivered a disappointing subscriber forecast and sent its shares plunging as much as 15% in late trading.

The world’s largest paid streaming service expects to sign up 2.5 million new subscribers in the third quarter, compared with the more than 5 million expected on Wall Street.

That’s a steep comedown from Netflix’s ferocious growth in the first half of the year, when pandemic-fueled lockdowns sent consumers scrambling to sign up for the service. Netflix added 10.1 million new paid customers in the second quarter, beating Wall Street’s average estimate of 8.27 million. And the company finished the second quarter with almost 193 million subscribers.

Netflix warned in April that its growth would slow in the coming months, but investors were hoping to be pleasantly surprised. They bid up the company’s shares to record highs in recent weeks. The stock is up more than 60% for the year, vaulting Netflix’s market value past the likes of Walt Disney Co.

The change at the top was another curve ball for investors — co-CEO arrangements often aren’t successful — but Hastings and Sarandos have already worked together for decades and the title just made their existing partnership official, Netflix said.

Hastings, 59, has run Netflix from its Silicon Valley base in Los Gatos, California. The 55-year-old Sarandos, meanwhile, is more like the head of a studio, operating from Los Angeles.

The global pandemic has been a boon for Netflix, accelerating the shift toward online, on-demand TV and movies around the globe. With movie theaters, concert venues and sports arenas still closed to patrons in much of the world, people stuck at home have turned to Netflix and other streaming services for entertainment.

The company also scored big hits with original movies, including “Extraction” and “The Wrong Missy,” as well as reality TV shows “The Floor Is Lava” and “Too Hot to Handle.”

Yet the company has been wary of what this surge in new customers in the first half of the year will mean going forward.

Production Schedule

Netflix was less concerned about its ability to keep making enough shows. While production halted in almost every country due to the pandemic, Netflix has said it’s already has the programming it needs for this year and the first half of 2021.

The streaming service has released more than 30 movies since mid-March, and has had particular success with star-driven action films like “Extraction” and “The Old Guard.” “Extraction,” starring Chris Hemsworth, delivered the biggest audience of any Netflix original movie in its first four weeks.

The second quarter results were unusual in that the U.S. and Canada provided the largest boost in new customers. While that remains Netflix’s largest region, growth there has been slower of late because of how many people are already customers.

On a regional basis, the U.S.-Canada market led with 2.94 million new customers. Europe, the Middle East and Africa added 2.75 million, bringing the total there to 61.5 million. Netflix gained 2.66 million customers in Asia and 1.75 million in Latin America.

Second-quarter revenue rose to $6.15 billion, beating the average of analysts’ forecasts. But earnings of $1.59 a share fell short.

Netflix shares fell as low as $449.65 in after-market trading, putting an end to one of the biggest rallies of the year. The company’s valuation was almost $232 billion at the close of trading on Thursday.

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