Reed Hastings: 2012's CEO of the Year?

There's no denying that Netflix (Nasdaq: NFLX  ) CEO Reed Hastings had a terrible year in 2011.

The founder of the popular video service made the shortlist of several "Worst CEOs of the Year" lists last year, and deservedly so.

The summertime rate hike of as much as 60% that initially had analysts and investors applauding backfired when customers barked back. Hastings failed to secure an extension with its most prolific streaming provider of fresh releases when Liberty Capital's (Nasdaq: LMCA  ) Starz bowed out. The ill-received move to split into two companies -- even though Qwikster was nixed before it even launched -- further damaged Netflix's already frayed reputation.

By the time that Netflix revealed that it shed 800,000 net subscribers during the third quarter and would be posting deficits in the near-term , investors checked out.

Hastings fumbled the ball -- and often -- but the only reason that he was routinely named as one of last year's worst corporate helmsmen was that Netflix's stock shed a little more than 60% of its value in 2011.

Ouch!

What a difference a week makes
If a free-falling share price was enough to heat up Hastings' seat, what do we make then of last week's nearly 25% surge in the stock?

Sure, we have 51 more weeks to go, but Hastings has probably given Netflix shareholders in a single week what you will be lucky to achieve in an entire year with your portfolio.

There were two things fueling Netflix's surge: The knee-jerk reaction is that Netflix shares bounced back after some well-deserved tax-loss selling. In of itself this would be a temporary thing. However, the better catalyst came in the form of the company's revelation that it served up 2 billion hours of streaming content last quarter. Netflix may have lost some more subscribers during the fourth quarter, but those that stuck around are leaning on the $7.99 a month digital smorgasbord. A lot.

Netflix is unlikely to approach last year's highs anytime soon. It would have to more than double to wind up back where it was at the beginning of last year. It would have to more than triple to revisit its summertime peak.

However, we're talking about baby steps here -- even if last week's 24.5% pop was done in some pretty big baby booties.

Take the long way home
After a strong week, can Netflix pull off an encore?

Reports across the pond indicate that Netflix has quietly launched this morning in the U.K. and Ireland. We already knew that these would be the next two expansion markets, but investors may cheer Netflix's ability to pull off this feat so early in 2012. Either way -- given the projected losses during the early stages of international expansion -- the sooner, the better.

This is really the first market where Netflix has a serious streaming rival. Amazon.com's (Nasdaq: AMZN  ) LOVEFiLM has been toiling away in Europe for years, and its stand-alone streaming service is supposedly cheaper. Any kind of success here -- in terms of early subscriber acquisitions or approaching breakeven results -- will help out the stock.

This is also the week for the Consumer Electronics Show in Las Vegas and the North American International Auto Show in Detroit. We're probably not going to see a company offer smartphone owners the ability to stream Netflix from backseat monitors. Netflix is unlikely to announce the availability of new releases as stand-alone premium services. Good luck seeing Netflix live up to its Qwikster promise of adding video games.

However, you never know the tech headlines that Netflix may make as the shows play on.

Detour ahead
The one negative comes from reports claiming that Time Warner (TWX) is about to force Netflix to wait 56 days -- double the current 28 days -- if it wants to keep buying its DVDs at bulk discount pricing.

I don't like it, but many subscribers don't seem to care. The silver-screen lining here is that Blockbuster and Coinstar's (Nasdaq: CSTR  ) Redbox -- two companies that rely more on DVD rentals of new releases than Netflix -- will also be playing by the new rules. So as Netflix continues to push its streaming service over its old school DVD rentals by mail, its traditional disc-based rivals are becoming less attractive.

Netflix can obviously do more, and it will have to do more if it wants to distance itself from last year's business school case study blunders. However, anything that Netflix can do to retain and eventually build on its audience of 23.9 million global subscribers -- at last count -- will make Hastings either a popular candidate for 2012 CEO of the Year or a slam dunk as Comeback CEO of the Year.

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The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story, except for Liberty Capital. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On January 09, 2012, at 11:39 AM, rhealth wrote:

    Reed Hastings: 2012's CEO of the Year? hehe, ah the irony. As an investor who continues to believe in the long term potential of Netflix (and a satisfied customer and "How I met your Mother" addict) I'm pleased to see so quick a rebound. Dead cat bounce? I think not.

  • Report this Comment On January 09, 2012, at 5:33 PM, mDuo13 wrote:

    As much as Netflix seemed to screw up in 2011, I'll give Mr. Hastings the pass in acknowledging his mistakes and moving to correct them. A true dud of a CEO would've let the Flixster shipwreck play out in all its horror; Hastings at least listened when consumers told him how boneheaded it was and held it back before it set sail.

    Netflix continues to do a best-in-class job at making its streaming services easily available, convenient, and usable. It may have suffered some major setbacks, but I think this graph (from a recent Ars Technica article about legal streaming versus piracy) speaks for itself:

    http:// static.arstechnica.net/2012/01/09/screen_shot_2012-01-09_at_...

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