(Bloomberg) – Ted Sarandos has just been named co-CEO of Netflix Inc. and is already facing a difficult task: calming investor anxiety about slowing growth in the video streaming giant.
The company turned to its longtime chief content officer to take the lead job, along with current CEO Reed Hastings, on a day that delivered a disappointing subscriber forecast and sent its shares falling as much as 15% on the last operations. They recovered slightly, but still fell 7.3% in premarket trading in New York on Friday.
The world’s largest paid streaming service expects to register 2.5 million new subscribers in the third quarter, compared to more than 5 million expected on Wall Street.
That’s a sharp drop from Netflix’s fierce growth in the first half of the year, when pandemic blockades sent consumers rushing to subscribe to the service. Netflix added 10.1 million new paid customers in the second quarter, beating the Wall Street average estimate of 8.27 million. And the company ended the second quarter with almost 193 million subscribers.
Netflix warned in April that its growth would slow in the coming months, but investors expected a pleasant surprise. The company’s shares have risen to record levels in recent weeks. Shares rose more than 60% during the year, increasing Netflix’s market value beyond Walt Disney Co.
The change at the top was another curved ball for investors (co-CEO deals are often unsuccessful), but Hastings and Sarandos have already worked together for decades and the title has just made their current partnership official, Netflix said .
Hastings, 59, has directed Netflix from his Silicon Valley base in Los Gatos, California. Meanwhile, Sarandos, 55, is more like the head of a studio, which operates out of Los Angeles.
The global pandemic has been a boon to Netflix, accelerating the shift to on-demand television and online movies worldwide. With movie theaters, concert halls and sports stadiums still closed to customers in much of the world, people trapped in their homes have turned to Netflix and other streaming services for entertainment.
The company also achieved great successes with original films, including “Extraction” and “The Wrong Missy”, as well as reality TV shows “The Floor Is Lava” and “Too Hot to Handle”.
However, the company warned that the increase in new customers makes it harder to keep up.
“When we think about guidance for the third quarter, we are not thinking of itself,” Chief Financial Officer Spencer Neumann said in a call with analysts. “We just added 10 million members, which is the fastest growth we’ve had in the second quarter.”
Production schedule
Netflix also played down concerns that it will soon run out of new content. While production stopped in almost every country due to the pandemic, Netflix has said it 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-directed action movies like “Extraction” and “The Old Guard.” “Extraction,” starring Chris Hemsworth, delivered the largest audience for any Netflix original movie in its first four weeks.
“We want to have as many hits as you know when you come to Netflix, you can go from one hit to the next and never have to think about any of those other services,” Hastings said on the call.
Second quarter results were unusual as the United States and Canada provided the biggest boost in new clients. While that remains Netflix’s largest region, growth has been slower lately due to the number of people who are already customers.
Regionally, the US and 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 increased to $ 6.15 billion, exceeding the average of analyst forecasts. But earnings of $ 1.59 per share fell short.
TikTok threat
The company also faces a lot of competition. In addition to competing with new streaming services from Apple Inc., Disney, NBCUniversal from Comcast Corp. and WarnerMedia from AT&T Inc., Netflix cited the video app TikTok as a rival on Thursday.
Netflix shares fell as low as $ 449.65 in the aftermarket, ending one of the highest concentrations of the year. The company’s valuation was nearly $ 232 billion at the close of business on Thursday.
(Updates with executive comments beginning at paragraph 11, premarket trading).
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