Hastings Is Still the Guy to Lead Netflix: Author
A little more than a year ago, Netflix was the darling of the stock market. The stock were priced near $300 and its subscriptions were growing at 3 million per quarter. That all changed in July 2011 when the company announced a new pricing structure that replaced the $9.99 monthly fee for DVDs and streaming video with a new fee of $15.98. Subscribers could pay $7.99 a month for just streaming video or DVDs by mail, but those who wanted both would pay 60% more.
Then Netflix rubbed salt in subscribers' wounds, announcing that those with both services would have to subscribe to each one separately, and it renamed its DVD-by-mail service "Quikstar." Eight hundred thousand subscribers dropped Netflix in the third quarter and by mid-October 2011 the company had eliminated Quikstar, keeping all services under one roof.
Co-founder Reed Hastings, who thought up those controversial pricing structures, is still its CEO.
"There's no question that Hastings is the guy to lead Netflix into the future," says Gina Keating, author of "Netflixed: The Epic Battle for America's Eyeballs."
Keating argues that Hastings is a fantastic leader, a visionary and an amazing software engineer. But he's not a people person or a marketing guy, she says.
The future of Netflix will largely depend on how the company treats its customers and how many new subscribers it can attract, notes Keating. Subscriptions are increasing but probably not as much as the 7 million adds the company had forecast.
Citigroup analyst Mark Mahaney calls Netflix a "screaming buy," with a relatively low valuation of 10x P/E and a $120 price target. But he says "significant risks" remain including "significant competition" from YouTube, Hulu and Amazon. Only YouTube beats Netflix in online traffic, according Citi's consumer survey of streaming video sites.
Morgan Stanley analyst Scott Devitt recently upgraded his rating on Netflix to overweight. He says the competition from Amazon may be overstated because Amazon may not want to spend the kind of money needed to compete directly with Netflix.
Investor Whitney Tilson recently told CNBC that he had doubled his Netflix holdings because "there's no evidence that any competitor…is getting real traction at this point." Tilson says Netflix has roughly the same market cap that Amazon had years ago when it took on Walmart and other competitors. Unlike the old Amazon, Netflix now has a positive cash position rather than a net debt position.
Could Amazon acquire Netflix? "It's always possible and the fact that its market cap is pretty low right now relative to some of these bigger companies makes it very, very attractive," says Keating.
She points out that Netflix is in good shape financially but "the brand did suffer (from last year's pricing changes) and there's a question as to whether or not it will recover."
In the meantime, Netflix is expanding into new markets like Scandinavia and offering original programming. Earlier this year Netflix streamed "Lilyhammer," a show featuring Steve Van Zandt from The Sopranos and Springsteen's E Street Band. Next year it will stream "House of Cards" from Academy Award nominated director David Fincher and host the return of "Arrested Development," which went off the air in early 2006.
"Netflix has a lot going for it," says Keating. "The number of subscribers it has and the relationships and data it has on consumers…it will be very hard to beat it.
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