In this segment from MarketFoolery, host Chris Hill and analysts Jason Moser and Taylor Muckerman discuss the news that Netflix's (NASDAQ:NFLX) longtime chief financial officer, David Wells, is stepping down to pursue other interests.
And while there are no signs of internal intrigue here, there can be a natural tendency to wonder about changes in the C-suite -- particularly when it comes to the person whose job it is to have the clearest handle on the money situation.
A full transcript follows the video.
This video was recorded on Aug. 13, 2018.
Chris Hill: Let me go back to something you said, Jason, about Twitter and the importance of Twitter. I agree with you, because for me, for someone who looks at business news every day, Twitter is invaluable. And yet, someone pointed out on Twitter this morning that Twitter is not necessarily representative of the mass audience in America. The example this person used was the fact that David Wells was trending on Twitter. David Wells is the Chief Financial Officer of Netflix. And it's like, no, Twitter skews more toward people who are interested in business and that sort of thing. But, we should talk about that.
David Wells is the Chief Financial Officer of Netflix. He has been the CFO for eight years, he's been with Netflix for 14 years. He announced that he is stepping down, he wants to pursue other things. This seems very straightforward. This does not seem coded in any way. He's staying on. As much as anything, I think this is evidence of how it's very straightforward -- he's staying on until they find a successor. There's no end date. I'm assuming they're not going to have a hard time finding a replacement, given how Netflix has performed. It really seems like they'll have a bunch of applicants for that.
That being said, maybe this is just me, but I always feel a slight negative for Company X when the CFO is leaving.
Taylor Muckerman: I'm surprised the stock isn't down more today, it's only down a couple of basis points. When you look at it, coming off a little bit of a rocky quarter, missed their own internal guidance. Doesn't happen very often, but it does happen with a company growing this rapidly. They talk about growing from a position of strength. The successor seemingly has a great balance sheet, cash flow generation, not necessarily earning money but they're contributing cash to the bottom line and the balance sheet there.
I just worry about the arms race going on on the content production side. They're spending $8 billion a year, Amazon is spending billions, Apple is getting into the game, HBO, Disney. I just don't think there are enough writers, producers, actors to go around to make engaging content. That's my biggest worry with this company, that race to the bottom on this original content side.
That's not necessarily the CFO's job, but that's one of the hiccups I see here. The content side is going to have to convince the new CFO that they're worthy of continuing to spend this crazy amount of money on original content.
Hill: To be clear, Jason, I don't think anything nefarious is going on. I don't think anything is wrong with Netflix's books. But my assumption that's built in any time I see news about a company's CFO is, you know who knows the most about a company's financials? The CFO.
Jason Moser: Just to tie a bow on the Twitter trending topic of David Wells, if David Wells wanted to get a picture out there of the lasagna he made last night, perhaps he would put that on Instagram. That's probably a bit more for the masses. So, you choose which direction you go in life. That gets you on whatever platform you're going to spend most of your time on. I'll happily learn a little bit more on Twitter and leave the Instagram to the foodporn and whatnot.
I think, with the CFO leaving a company, any time, typically not a big deal. With Netflix, I don't think it's a big deal, although it's worth a little deliberation, given the way the company's finances were, given the criticism that we have and the amount of debt they continue to take out. I think their strategy is the right one. Cast a big net with a little bit of content for everybody out there. Grow that user base as big as possible. The bigger you get that user, the more difficult it is to make a meaningful ding in it. It's somewhere in the neighborhood of 130 million global users today. That's a very big audience.
My big question for Netflix -- again, we're going to see heavier spending on content here in the back half of the year and going in the next year -- as a user, I rarely use it. I'm finding that it's because it doesn't have a lot of really good content, frankly. I'm able to find what I want to watch wherever I want to watch it. You have Amazon, Netflix, HBO, Hulu all this stuff out there --
Muckerman: Disney coming down the pipe.
Moser: There's great content on all platforms. I don't think Netflix has to worry anything about that. That's the point, really. It's an attractive price, you can subscribe to it and basically forget about it. You're not going to sit there and hem and haw over $12-13 a month. Again, it gets me back to my question of pricing power -- how high can they raise the price of that subscription until people start saying, "Oh, yeah, that's right, I have a subscription to this. Am I really getting out of it what I want?" That's my longer-term question.
That's far down the road. I don't think they're going to have any trouble filling the CFO position. It's a good business with a super bright leader in Reed Hastings. That's just the one question I have, is in regard to pricing power.
Hill: With regards to that, my answer is, at least in the near-term, as long as the price starts with the No. 1.
Moser: [laughs] Yeah, I think you're right.
Hill: I don't even know what it is right now, $12?
Moser: Yeah, something like that.
Hill: They can get that to the teens easily, and they can probably get it to $18. Once it starts creeping up, possibly starting with a two, then it might get a little dicey.