As Netflix Member Growth Rebounds, Co-CEO Reed Hastings Steps Down

Netflix's founder and its chief executive for 25 years, Reed Hastings, has stepped down from his co-CEO role to serve instead as the executive chairman. 

Current co-CEO Ted Sarandos will continue to lead the streaming giant, and he'll be joined by new co-CEO Greg Peters, who has been Netflix's chief operating officer for three years and chief product officer for six.  

The succession was announced Thursday as Netflix reported better-than-expected growth in the fourth quarter, capping a turbulent year that earlier included the launch of advertising, the company's first subscriber losses in a decade and the promise of a crackdown on password sharing. 

Netflix, the world's dominant streaming-video subscription service, said members increased by 7.66 million, to 230.75 million total, between October and December. That beat Netflix's October's guidance to add 4.5 million new members. It also beats analysts' average expectation, which was slightly more optimistic at 4.57 million new members, according to Refinitiv. The latest growth is a rebound from the first half of last year, when Netflix recorded unprecedented subscriber losses. 

Shares were up 5.9% percent to $334.29 in early trading Friday. 

Through Thursday's market close, the stock had lost more than one-third of its value in the last 12 months as Netflix's membership growth drama and worries about the wider economy made investors anxious.

In a separate post about his decision to step down as chief, Hastings wrote that he'd already been delegating the management to Sarandos and Peters for more than two years. 

"It was a baptism by fire, given COVID and recent challenges within our business," Hastings said. "But they've both managed incredibly well, ensuring Netflix continues to improve and developing a clear path to reaccelerate our revenue and earnings growth. So the board and I believe it's the right time to complete my succession."

Before this year, Netflix's unflagging subscriber growth pushed nearly all of Hollywood's major media companies to embrace streaming as the future of TV. As they poured billions of dollars into their own streaming operations, the so-called streaming wars brought about a wave of new services, including Apple TV Plus, Disney Plus, HBO Max, Peacock and Paramount Plus. 

The flood of streaming options complicates how many services you must use (and, often, pay for) to watch your favorite shows and movies online. But it's also ratcheted up Netflix's competition, intensifying the company's battle to win new members and keep the ones it has. The pressure has pushed Netflix to pursue strategies it had dismissed or avoided for years: In November, the company launched cheaper subscriptions supported by advertising, and it'll broaden a password-sharing crackdown this year to more countries than the few Latin American markets where it's already testing account-sharing fees. 

On Thursday, Peters said the password fees would start launching more broadly later in the first quarter and would take a couple quarters to fully roll out. 

Netflix also said that members on its new ad-supported plan are watching more than the company expected, with their engagement consistent with that of ad-free members. 

"Also, as expected, we've seen very little switching from other plans," Netflix said in its report -- meaning it believes people aren't trading down to the cheaper, ad-supported level from a pricier, ad-free one very much. 

That contradicts third-party estimates that the opposite is happening. A study released last week by data and consulting company Kantar contended that trading down accounted for nearly all Netflix ad-supported subscriptions in the first two months of the tier's launch. 

Asked about the possibility of a free version of Netflix with advertising, Sarandos said the company is open to all kinds of business models but doesn't plan to pursue a free tier this year. Instead, it's focused both on expanding the paid "Basic with ads" offering and on launching the account-sharing fee system. "We've got a lot on our plate this year," he said. 

As part of the executive reshuffling, Netflix's Bela Bajaria, formerly head of global TV, has become chief content officer, a title that Sarandos previously held. Scott Stuber has been named chairman of Netflix film.

In the fourth quarter, Netflix added 910,000 streaming customers in the US and Canada for a total of 74.3 million. In Europe, Middle East and Africa, membership increased by 3.2 million, to 76.73 million. In Latin America, subscribers grew by 1.76 million, to 41.7 million. And in the Asia Pacific region, 1.8 million new members widened its base there to 38.02 million.

Overall, Netflix reported a profit of $55.3 million, or 12 cents a share, compared with $607.4 million, or $1.33 a share, a year earlier. Revenue increased 1.9% to $7.852 billion.

Analysts had anticipated profit would be an upside surprise, predicting earnings per share of 45 cents versus Netflix's guidance of 36 cents. The consensus estimate for revenue was $7.848 billion.

Watch this: Why Streaming Is Getting More Expensive

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Correction, Jan. 24: Due to an editing error, the headline on this story incorrectly described member growth. The growth increased for the second quarter in a row.