C-Suite Transitions – CEO Transitions at Netflix

  • January 26, 2023

Welcome to edition 25 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.

Sudden Departures

  1. NeuroBo Pharmaceuticals (NRBO): On January 12, 2023, Gil Price, M.D. resigned as Chief Executive Officer and President, effective immediately.
  2. NetFlix (NFLX): On January 13, 2023, Reed Hastings stepped down as CO-CEO of the company, effective immediately.
  3. Catalyst Biosciences (CBIO): On January 15, 2023, Catalyst Biosciences terminated Grant Blouse Ph.D. from his position as the Chief Scientific Officer, effective as of January 15, 2023.
  4. Eos Energy Enterprises (EOSE): On January 19, 2023, Randall Gonzales informed his intention to resign as Chief Financial Officer, effective as of January 23, 2023, due to personal reasons.
  5. Novabay Pharmaceuticals (NBY): On January 19, 2023, Andrew Jones voluntarily resign from his position as the company’s Chief Financial Officer and Treasurer effective as of February 15, 2023.
  6. Waitr Holdings (ASAP): On January 20, 2023, Mark D’Ambrosio informed Waitr Holdings of his decision to resign as Chief Sales Officer effective February 10, 2023.
  7. Vince Holding Corp (VNCE): On January 20, 2023, David Stefko, Executive Vice President, and Chief Financial Officer decided to retire from his positions, effective February 10, 2023.
  8. Dollar Tree (DLTR): On January 22, 2023, Michael A. Witynski stepped down as Chief Executive Officer effective January 28, 2023.
  9. Pagerduty (PD): On January 24, 2023, Pagerduty announced that Dave Justice has resigned as Chief Revenue Officer, effective February 3, 2023, to pursue other opportunities.

CEO Transitions at Netflix (NFLX)

Founded in 1997 by Reed Hastings and Marc Randolph, Netflix with more than 223 million paid subscribers in over 190 countries, is the most popular streaming entertainment service in the world.

On January 20, 2023, Netflix announced that Reed Hastings has resigned from his role as co-Chief Executive Officer and President of the company, but remains an employee of the company in his new role as Executive Chairman, effective January 13, 2023. Chief Operating Officer Greg Peters, will now work with Ted Sarandos, who has been  co-CEO since 2020.

Reed Hastings, Netflix co-Founder and Former CEO

Reed Hastings, Netflix co-founder and Former CEO
Reed Hastings

Known for his innovative leadership approach, Netflix co-founder Reed Hastings is stepping down from his position as CEO after 25 years.

“Our board has been discussing succession planning for many years (even founders need to evolve!). As part of that process, we promoted Ted to co-CEO alongside me in July 2020, and Greg to Chief Operating Officer – and in the last 2½ years I’ve increasingly delegated the management of Netflix to them.” Reed Hastings mentioned on the company’s blog.

One of the few businesses that have successfully implemented a co-CEO structure is Netflix, and for the moment, it appears to be continuing with it. Other companies that have used a similar structure include Workday (WDAY), which experienced its own management transition last month.

Netflix, once a favorite on Wall Street, was hit hard in early 2022 after the company reported its first drop in subscribers in Q1 2022 and guided towards a 2 million decline in subscribers in Q2 2022. I wrote an article about the company in May 2022 titled Broken Growth Stocks: Netflix and concluded that article by saying,

While increasing competition and maturity in developed markets are significant headwinds for the company, with the founder at the helm and a leading position in streaming, the company still has a lot of unrealized potential. The road is likely to be bumpy both because of company specific issues and general market conditions but if investors are willing to be patient and build a position over a period of time, they could benefit from the current opportunity provided by Netflix.

The stock bottomed in mid-2022 and has more than doubled from those levels as the decline in subscribers in Q2 2022 was not as bad as expected and the company returned to subscriber growth in Q3 2022.

The business’ most recent transition to an ad-supported tier also holds promise. According to Netflix’s most recent earnings call, the firm attracted 7.7 million new customers, exceeding the majority of analysts’ forecasts and acknowledged the introduction of its less expensive ad-supported tier as a success for Q4, but added that there was still “much more to do”.

In an era when the streaming service market is becoming very competitive, Netflix claims that new television shows like “Wednesday,” “Harry and Meghan,” and the movie “Glass Onion” helped buoy the service.

Mr. Hastings will serve as Executive Chairman while Mr. Sarandos and Mr. Peters will share the role of co-CEOs. Mr. Sarandos and Mr. Peters both received promotions in July 2020, which came at a challenging time for the business.

“It was a baptism by fire, given Covid and recent challenges within our business,” Hastings said in a statement. “But they’ve both managed incredibly well … so the board and I believe it’s the right time to compete my succession.”

Reed Hastings will receive a significant pay cut with his new salary annual salary of $500,000. Mr. Hastings will also receive $2.5 million in stock options. Hastings’ bonus wasn’t publicly disclosed.

Greg Peters

Greg Peters Co-CEO Netflix
Greg Peters

Along with co-CEO Ted Sarandos, Mr. Peters will hold the position of Co-CEO. He joined the company in 2008 as  spent three years as Chief Product Officer before becoming Chief Operating Officer in July 2020.

Mr. Peters will receive a $3 million salary per year, according to a filing with the SEC. Additionally, he will earn an annual stock option allocation of more than $17 million and is expected to be awarded a bonus of more than $14 million.

Ending Password Sharing

Last year, Reed Hastings, the former CEO of Netflix, indicated that password sharing would be phased out for everyone. According to an interview, Greg Peters and Ted Sarandos gave to Bloomberg, Netflix password sharing will shortly come to a stop for all users.

In various Latin American countries, including Costa Rica, Chile, Peru, and others, Netflix is apparently exploring a restriction on password sharing. Users in these countries who wish to access a friend’s Netflix account must pay $3 to the streaming giant.

Ted Sarandos

Ted Sarandos Co-CEO Netflix
Ted Sarandos

Mr. Sarandos joined Netflix in 2000. In July 2020, he was appointed as co-CEO of Netflix, and also continued as Chief Content Officer

He directs the teams in charge of finding and producing all Netflix content, including original shows like Wednesday, Stranger Things, Dark (Germany), and La Casa de Papel (Spain), also known as Money Heist.

Since 2000, Mr. Sarandos has been in control of all content operations, and in 2013, he oversaw the transformation of the business to producing original content.

Notable Insider Purchases

In January 2022, Co-CEO Reed Hastings acquired 51,440 shares of Netflix, paying $388.83 per share for a total amount of $20 million. These shares were purchased indirectly by a trust.

We wrote the following in one of our weekly Insider Weekends articles titled, Insider Weekends: Reed Hastings Purchases $20 Million Worth Of Netflix:

Mr. Hastings’ purchase of Netflix is his first insider purchase since we started tracking insider transactions in 2010. The reason this purchase is all the more remarkable is that Mr. Hastings didn’t buy shares even during the depths of the 2008-2009 bear market. I found a form 4 filed by him on February 26, 2009 when he sold shares at a split-adjusted average price of $5.07 per share. Netflix split its shares 7 for 1 on July 15, 2015. The market bottomed just a few days later.

This purchase by Mr. Hastings put the company on my radar and I started building a position in the company across multiple trades last year. Insiders are often optimistic about their companies and hence early in their purchase transactions, which was very much the case with Mr. Hastings’ purchase.

You can view the list of recent insider transactions for Netflix here.

Earnings

In 2022, Netflix finished with 231M paid memberships and generated $32B of revenue, $5.6B in operating income, $2.0B of net cash from operating activities, and $1.6B of free cash flow (FCF).

YoY revenue growth of 2% in Q4 was driven by a 4% increase in average paid memberships. Operating income of $550M in Q4 was down compared to $632M in Q4 ‘21. EPS in Q4’22 was $0.12 vs. $1.33 in Q4‘21.

The company’s capital structure policy remains unchanged, and management anticipates it will likely resume its share repurchase program this year, returning some of the additional cash it’s generating to shareholders.

Conclusion

In a blog post, Mr. Hastings said that the two CEOs had complementary insights about entertainment and technology and that having them both as co-CEOs would accelerate the company’s growth.

The company is likely to see growth in its free ad-supported subscription service and a new video game focused service. I believe the company has a significant lead on competitors and I don’t see that gap narrowing anytime soon. The stock isn’t exactly inexpensive, trading at a forward EV/EBITDA of 23 and a forward Price/Sales of 5. I plan to retain my long position in Netflix for now.

Appointments

1.  Dollar Tree (DLTR): $149.56

On January 22, 2023, the Board of Directors of Dollar Tree appointed Richard W. Dreiling, as Chief Executive Officer of the company, effective January 29, 2023.

MarketCap: $32.41BAvg. Daily Volume (30 days): 1,947,539Revenue (TTM): $27.69B
Net Income Margin (TTM): 15.77%ROE (TTM): 20.84%Net Debt: $9.91B
P/E: 20.41Forward P/E: 19.57EV/EBIDTA (TTM): 14.13
P/S (TTM): 1.20P/B (TTM): 3.9552 Week Range: $124.76 – $177.19

2. Logitech International S.A. (LOGI): $57.71

On January 21, 2023, the Board of Directors of Logitech appointed Prakash Arunkundrum as Chief Operating Officer, effective as of January 23, 2023.

MarketCap: $9.16BAvg. Daily Volume (30 days): 986,409Revenue (TTM): $4.81B
Net Income Margin (TTM): -23.73%ROE (TTM): 18.64%Net Cash: $1.04B
P/E: 21.98Forward P/E: 14.03EV/EBIDTA (TTM): 12.04
P/S (TTM): 1.81P/B (TTM): 4.1652 Week Range: 41.81 – $81.71

3. Splunk (SPLK): $92.34

On January 23, 2023, Splunk announced the appointment of Brian Roberts as the company’s Senior Vice President and Chief Financial Officer, effective immediately.

MarketCap: $15.11BAvg. Daily Volume (30 days): 1,478,186Revenue (TTM): $3.30B
Net Income Margin (TTM): 58.45%ROE (TTM): 350.81%Net Debt: $2.31B
P/E: -21.63Forward P/E: 36.23EV/EBIDTA (TTM): -40.80
P/S (TTM): 4.42P/B (TTM): N/A52 Week Range: $65 – $150.79

4. Ares Capital  (ARCC): $19.37

On and effective January 18, 2023, the board of directors of Ares Capital appointed Jana Markowicz, as Chief Operating Officer.

MarketCap: $10.30BAvg. Daily Volume (30 days): 3,318,054Revenue (TTM): $1.99B
Net Income Margin (TTM): -45.82%ROE (TTM): 8.99%Net Debt: $11.98B
P/E: 11.79Forward P/E: 8.46EV/EBIDTA (TTM): N/A
P/S (TTM): 10.18P/B (TTM): 1.0752 Week Range: $16.12 – $22.32

5. NetFlix (NFLX): $367.96

On January 19, 2023, Netflix announced that Greg Peters, was appointed as co-Chief Executive Officer of the company effective January 13, 2023.

MarketCap: $161.91BAvg. Daily Volume (30 days):  10,621,042Revenue (TTM): $31.62B
Net Income Margin (TTM): 170.19%ROE (TTM): 24.53%Net Debt: $10.75
P/E: 36.57Forward P/E: 30.77EV/EBIDTA (TTM): 28.92
P/S (TTM): 4.89P/B (TTM): 7.3452 Week Range: $162.71 – $458.48

 Departures

1. Dollar Tree (DLTR): $149.56

On January 22, 2023, the Board of Directors of Dollar Tree announced that Michael A. Witynski will be stepping down as Chief Executive Officer effective January 28, 2023.

MarketCap: $32.41BAvg. Daily Volume (30 days): 1,947,539Revenue (TTM): $27.69B
Net Income Margin (TTM): 15.77%ROE (TTM): 20.84%Net Debt: $9.91B
P/E: 20.41Forward P/E: 19.57EV/EBIDTA (TTM): 14.13
P/S (TTM): 1.20P/B (TTM): 3.9552 Week Range: $124.76 – $177.19

2. Dropbox (DBX): $22.97

On January 18, 2023, Dropbox announced that Timothy Young has given notice of his decision to resign as President, effective February 1, 2023.

MarketCap: $8.07BAvg. Daily Volume (30 days): 2,105,079Revenue (TTM): $2.29B
Net Income Margin (TTM): -8.44%ROE (TTM): -92.72%Net Debt: $830M
P/E: 24.42Forward P/E: 13.18EV/EBIDTA (TTM): 17.20
P/S (TTM): 3.69P/B (TTM): N/A52 Week Range: $19.07 – $25.81

3. Entegris  (ENTG): $79.36

On January 23, 2023, Entegris, announced that Greg Graves plans to retire from his position as Executive Vice President, Chief Financial Officer, and Treasurer in 2023.

MarketCap: $11.82BAvg. Daily Volume (30 days): 1,619,198Revenue (TTM): $2.97B
Net Income Margin (TTM): -50.88%ROE (TTM): 11.41%Net Debt: $5.9B
P/E: 40.93Forward P/E: 22.17EV/EBIDTA (TTM): 21.70
P/S (TTM): 3.69P/B (TTM): 3.7552 Week Range:$61.75 – $141.39

4. Pagerduty (PD): $27.34

On January 24, 2023, Pagerduty announced that Dave Justice has given notice that he will resign from his position as the company’s Chief Revenue Officer, effective February 3, 2023, to pursue other opportunities.

MarketCap: $2.39BAvg. Daily Volume (30 days): 1,003,466Revenue (TTM): $348.34M
Net Income Margin (TTM): 0.20%ROE (TTM): -51.67%Net Debt: $156.4M
P/E: -17.52Forward P/E: 185.19EV/EBIDTA (TTM): -19.50
P/S (TTM): 7.01P/B (TTM): 10.4352 Week Range: $19.51 – $38.75

5. NetFlix (NFLX): $2.45

On January 19, 2023, Netflix announced Reed that Hastings has resigned from his role as co-Chief Executive Officer and President, but remains an employee of the company in his new role as Executive Chairman effective January 13, 2023.

MarketCap: $161.91BAvg. Daily Volume (30 days):  10,621,042Revenue (TTM): $31.62B
Net Income Margin (TTM): 170.19%ROE (TTM): 24.53%Net Debt: $10.75
P/E: 36.57Forward P/E: 30.77EV/EBIDTA (TTM): 28.92
P/S (TTM): 4.89P/B (TTM): 7.3452 Week Range: $162.71 – $458.48

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Voluntary Disclosure: I hold long positions in Netflix (NFLX) and Workday (WDAY).