Netflix (NFLX.US) plunged nearly 9% in after-hours trading! The cold Q2 guidance "doused" the hot Q1 financial report, and the founder's resignation added more chilliness.

Netflix (NFLX.US) announced disappointing second-quarter performance guidance after the US stock market closed on Thursday. At the same time, co-founder Reed Hastings announced his departure from the board of directors. This double news dragged down the stock price in after-hours trading. While the streaming giant exceeded revenue and profit expectations in the first quarter, its cautious outlook for future quarters shook investor confidence. Hastings' 29-year leadership career has officially come to an end, seen by the market as the end of an era. Weak performance guidance triggers selling Netflix expects earnings per share for the current quarter ending in June to be 78 cents, lower than the 84 cents previously predicted by Wall Street analysts; revenue guidance for the quarter is $12.57 billion, also below market expectations of $12.64 billion. This cautious outlook quickly triggered a decline in stock prices, with after-hours losses approaching 9%. Although the company reaffirmed its full-year revenue range of $50.7 billion to $51.7 billion and emphasized that the advertising business is expected to generate $3 billion in revenue by 2026, doubling from the previous year, the second-quarter amortization costs for content will be concentrated in the first half of the year due to project scheduling, putting pressure on profits. First-quarter financial performance exceeds expectations In contrast to the bleak second-quarter outlook, Netflix had a strong first-quarter performance. The financial results showed that revenue for the quarter increased by 16% year-on-year to $12.25 billion, slightly higher than analysts' expectations of $12.18 billion; net profit almost doubled from $2.89 billion (66 cents per share) in the same period last year to $5.28 billion, with earnings per share reaching $1.23, far exceeding market expectations of 76 cents. The better-than-expected profit was partly due to a $2.8 billion "break-up fee" obtained after the deal with Warner Bros. Discovery fell through. Operating profit also saw an 18% year-on-year increase, mainly due to slightly higher than planned subscription revenue and a new round of price increases launched in March (standard ad-free package monthly fee increased by $2 to $20). Hastings steps down, denies connection to failed acquisition On the same day, Netflix announced that 65-year-old Chairman and co-founder Hastings will step down from the board of directors after his term expires in June and will focus on charity and personal interests in the future. This personnel change marks the end of Netflix's early days - Hastings, who took over as CEO from Marc Randolph in 1999, led the company's transformation from a mail-order DVD rental company to a streaming empire covering over 190 countries and regions, shaping a unique corporate culture centered around "member delight." He stepped down as CEO in January 2023 and handed over the reins to Ted Sarandos and Greg Peters. In response to analysts' questions about whether his departure is related to the failed acquisition of Warner Bros. assets, co-CEO Sarandos denied this, emphasizing that Hastings was a "strong supporter" of the deal and the board also unanimously recognized the value of the acquisition. It is reported that Netflix withdrew from the prolonged bidding war for Warner Bros. Discovery's film and HBO assets in February this year, with the latter ultimately acquired by Paramount for $110 billion. Sarandos described the deal as a potential strategic "accelerator," but stressed that the price had to be right, and the bidding process provided management with a deeper understanding of transaction execution. He also emphasized that future mergers and acquisitions will continue to be "disciplined tools." Focus on organic growth and content investment After losing a major acquisition target, Sarandos emphasized that while acquisitions are "one of the tools to help us achieve our goals," Netflix is now focusing on internal growth opportunities. Sarandos and Peters stated that they have developed a future development plan, highlighting three key priorities: continuing to deliver quality content, using new technologies to enhance user experience, and further tapping into revenue potential from members. Netflix plans to increase content investment this year, which is seen as one of the main reasons for the weak profit guidance for the second quarter; they also plan to launch an upgraded mobile interface later this month, introducing vertical video exploration features to increase user engagement time. In addition, expanding video podcast content and live events such as the World Baseball Classics are seen as new ways to enhance user stickiness. Sarandos revealed that the company is in talks with the National Football League (NFL) to expand their partnership. Despite stagnant growth in total viewing time, Netflix continues to maintain revenue growth through price increases and efforts to combat password sharing. The global paid subscription user base reached 325 million in January. Co-CEO Peters defended the price increases during the earnings call, stating that price adjustments are within the annual plan, and the current user churn and subscription downgrade trends are consistent with historical experiences, emphasizing the logic of providing more entertainment value in exchange for higher member fees.