It's the end of an era. Netflix (NFLX 4.17%) founder and co-CEO Reed Hastings announced on Thursday that he's stepping down. Netflix shouldn't skip a beat, though, at least in theory. The stock moved 8% higher on the news, so it's clear that the market is cool with the change in leadership. Netflix has been planning for this day the moment that programming and content guru Ted Sarandos was tapped to serve alongside Hastings as co-CEO in the summer of 2020.
Sarandos won't have the corner office all to himself now. He'll share the co-CEO title with Chief Operating Officer Greg Peters. Hastings, Sarandos, and Peters have been leaning on each other at Netflix for at least 15 years. Hastings will be a call away if needed as executive chairman, but Sarandos and Peters should do just fine. It's a sound succession plan, but let's take a moment to show Hastings some appreciation for leading the revolutionary streaming company through its first quarter-century.
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Be kind, rewind
I've been covering Netflix since its IPO in early 2002. I was skeptical at first, and I wasn't alone. By the fall of that year, Netflix was a broken IPO. Still, I changed my tune and became a shareholder.
One of my biggest regrets as an investor -- and it's really not even close -- was selling most of my Netflix shares too soon. I own just 2% of my original position, and it's my largest individual holding. The other 98% of my initial stake is worth nearly $2.4 million in the hands of other investors.
I had the benefit of interviewing Hastings a couple of times in the early years. As I look back over some of the old Fool.com interviews we shared, it becomes clear how far ahead he was of marketplace trends. I was stuck in the present, feeling as if I was a step in front of others who were lost in the past. Hastings, meanwhile, nailed the future. I often asked him about revenue streams that we armchair CEOs at the time thought he was neglecting. He wasn't interested.
Netflix was largely mailing out DVDs in 2009 and just starting to stretch its streaming wings. It dabbled briefly in putting ads on its signature envelopes. When it stopped, I asked him why he didn't go bigger, striking partnerships with sponsors to wedge demo discs or lightweight samples in the mailers. He shot my notion down. He conceded that the demographics of Netflix subscribers were appealing to marketers, but they wanted to focus on their consumer electronic partners by working on content inventory instead of ad inventory.
I asked him to explain why it wasn't following Blockbuster, Redbox, and Gamefly into video game disc rentals. Wasn't it just incremental money there for the taking? He stuck to his guns, arguing that the Netflix brand is all about entertainment video.
He was right. Netflix is dabbling in digital gaming now -- and it recently launched an ad-supported tier -- but that's only happening now when it has 25 times the global subscriber base than the 10 million members it was serving 14 years ago. I also imagine that the push for mobile gaming experiences and ad-backed programming came more from Sarandos or Peters than from Hastings himself.
After 25 years at Netflix and 21 years of generating wealth-altering returns for investors, Hastings gets the chance to see his company fly without the benefit of him in the cockpit. Look back at what the market seemingly saw as missteps for the bellwether of streaming media stocks, and history will show that Hastings was right all along. Yes, even the Qwikster fiasco now has to be seen from the updated perspective in which it was the right call to burn his own ships. Brilliance shines its brightest over long stretches of time, and Netflix stock is a giant searchlight in delivering annual compounded returns north of 30% over its first two decades of trading.
Is Hastings leaving too soon? Is he leaving too late? Only those who lack a sense of history or the bruises that come from doubting Hastings would ask those questions. He was right before. He's right now. He'll be right in the future.
