Netflix (NFLX.US) saw its shares tumble sharply in after-hours trading on Thursday following the release of a weaker-than-expected second-quarter earnings forecast. The announcement that co-founder Reed Hastings will step down from the board added to the negative sentiment. Although the streaming giant reported first-quarter revenue and profit that exceeded expectations, its cautious outlook for the upcoming quarter unsettled investor confidence. The departure of Hastings, marking the end of his 29-year leadership tenure, was viewed by the market as the close of an era.

Weak guidance triggered a sell-off. Netflix projected earnings per share of 78 cents for the current quarter ending in June, below the 84 cents previously forecast by Wall Street analysts. Its revenue guidance of $12.57 billion for the quarter also fell short of the market expectation of $12.64 billion. This cautious outlook prompted an immediate drop in the stock price, with after-hours losses approaching 9%. While the company reaffirmed its full-year revenue range of $50.7 billion to $51.7 billion and emphasized that its advertising business is on track to generate $3 billion in revenue by 2026—doubling from the previous year—it noted that content amortization costs in the second quarter would be concentrated in the first half due to project scheduling, putting pressure on profits.

First-quarter results outperformed expectations. In contrast to the subdued second-quarter outlook, Netflix delivered strong first-quarter performance. Revenue for the quarter rose 16% year-over-year to $12.25 billion, slightly above analyst estimates of $12.18 billion. Net profit nearly doubled to $5.28 billion from $2.89 billion (or 66 cents per share) a year earlier, with earnings per share reaching $1.23, significantly surpassing the market expectation of 76 cents. The better-than-expected profit was partly aided by a $2.8 billion "breakup fee" received after a deal with Warner Bros. Discovery (WBD.US) fell through. Operating profit also increased 18% year-over-year, primarily due to slightly higher-than-planned subscription revenue and a new round of price increases implemented in March, which raised the monthly fee for the standard ad-free plan by $2 to $20.

Hastings steps down, denies link to failed deal. On the same day, Netflix announced that 65-year-old Chairman and co-founder Reed Hastings will leave the board after his term ends in June, shifting his focus to philanthropy and personal interests. This leadership change marks the end of Netflix's startup era—since taking over as CEO from Marc Randolph in 1999, Hastings transformed the company from a DVD-by-mail rental service into a streaming empire spanning more than 190 countries and regions, while fostering a unique corporate culture centered on "member delight." He stepped down as CEO in January 2023, handing over the reins to Ted Sarandos and Greg Peters. In response to analyst questions about whether his departure was related to the failed acquisition of Warner Bros. assets, co-CEO Sarandos denied any connection, stating that Hastings had been a "strong supporter" of the deal and that the board unanimously recognized its value. It was reported that Netflix withdrew from a protracted bidding war for Warner Bros. Discovery's film and HBO assets in February, with the assets ultimately acquired by Paramount (PSKY.US) for $110 billion. Sarandos commented that the deal could have been a strategic "accelerator," but only "at the right price," adding that the bidding process provided management with deeper insights into deal execution and that future mergers and acquisitions would remain a "disciplined tool."

Focus shifts to organic growth and content investment. Following the loss of a major acquisition target, Netflix has pivoted its focus toward internal growth opportunities, though Sarandos still emphasized that M&A remains "one of the tools to help us achieve our goals." Sarandos and Peters outlined a future development plan centered on three priorities: continuing to produce high-quality programming, leveraging new technology to enhance user experience, and further unlocking membership monetization potential. Netflix plans to increase content investment this year, which is seen as one reason for the weak second-quarter profit guidance. The company also intends to launch an upgraded mobile interface later this month, introducing vertical video discovery features to boost user engagement. Additionally, expanding video podcast content and live events such as the World Baseball Classic are viewed as new strategies to increase user stickiness. Sarandos revealed that the company is in discussions with the National Football League (NFL) to broaden their collaboration. Despite stagnating growth in total user viewing time, Netflix has maintained revenue growth through price increases and a crackdown on password sharing. Its global paid subscriber base reached 325 million in January. Co-CEO Peters defended the price hikes during the earnings call, stating that adjustments were part of the annual plan and that current user churn and subscription downgrades align with historical trends. He emphasized the logic of providing greater entertainment value in exchange for higher member payments.