Reed Hastings Loses $300 Million in Netflix Collapse

12:12 PM PST 10/26/2011 by Paul Bond
Hector Vivas/Latin Content/Getty Images

In 15 weeks, company shares have sunk 74 percent, wiping out nearly $12 billion in market value.

This article originally appeared in the Nov. 4 issue of The Hollywood Reporter.

In 15 weeks, shares of Netflix have sunk 74 percent, wiping out nearly $12 billion in market value. No one feels that more personally than co-founder and CEO Reed Hastings, whose stake in the company shrunk from almost $400 million to $87 million in that time frame.

"I actually don't remember a high-flying stock collapsing this quickly," analyst Henry Blodgett told The Daily Ticker. That's a remarkable assessment, considering Blodgett's track record as a rainmaker of the Internet bubble era.

Given the carnage created by missteps that include the creation and destruction of Qwikster and 800,000 subscriber defections after a 60 percent fee hike, murmurs that Hastings should be removed from his leadership role are inevitable.

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"Netflix got what it deserved," says John Tschohl, author of Achieving Excellence Through Customer Service and founder of the Service Quality Institute. "The CEO needs to go -- more bad days ahead," he warns.

But until attorneys begin filing lawsuits on behalf of shareholders, Tschohl is in the minority. Perhaps that's because, when all is said and done, it was under Hastings that Netflix went from penny-stock status to a multibillion-dollar corporation, making millionaires of several executives and early shareholders in the process. Even after the recent swoon, the stock is up 2,300 percent in nine years. Not too shabby, considering the S&P 500 is up a mere 38 percent in the same time frame.

And it should be noted that the last time Netflix raised prices and lost subscribers was in 2007. The stock quickly dropped 30 percent to $17. Not a bad buying opportunity, in retrospect.

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Still, during the week of Oct. 24, Goldman Sachs, Citigroup and J.P. Morgan all yanked their "buy" recommendations on the stock while Janney Capital Markets slapped a "sell" on it.

Mostly, though, Wall Street has adopted a wait-and-see attitude.

"Netflix is a riddle wrapped up in an enigma," says Wedbush analyst Michael Pachter, who gives the stock a "neutral" rating. "The Netflix management team has evolved from one of the most consistent and dependable of any company we have ever covered into one of the most inconsistent and erratic in the course of the last 15 weeks."

Even Blodgett is optimistic that Hastings will turn things around, as he has done many times, including when Walmart tried to encroach on Netflix's business: "If in two years Netflix has built a monster streaming business, everyone will say, 'Oh, that Reed Hastings, he's like [Amazon's] Jeff Bezos, he focuses on the long term and so forth, and he's such a genius." 

NETFLIX STOCK

  • July 13 Peak: $298.73
  • Close Oct. 25: $77.7
  • Down: 74%

HASTING'S PERSONAL STAKE

  • July 13 Peak: Nearly $400 million
  • Close Oct. 25: $87 million
  • Loss: $313 million

 

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