Social Business Software
Netflix Shocker: Confidence Crisis
Lack of confidence in leadership spurs sell-off despite sound strategy
By: Hollis Tibbetts
Oct. 26, 2011 11:45 AM
Boomberg's Cliff Edwards reported the facts well:
Netflix Inc. (NFLX) dropped the most in seven years after the video-rental service said it lost 800,000 U.S. subscribers in the third quarter, more than expected, and predicted more cancellations over a price increase.
Netflix plunged 37 percent to $75.28 at 9:39 a.m. New York time, for the biggest intraday decline since October 2004. The stock closed at an all-time high of $298.73 on July 13, according to Bloomberg data.
The outlook suggests Netflix has been unable to contain a subscriber revolt over a price increase and aborted plan to force subscribers into separate streaming and DVD services. The company now forecasts losses in 2012 because of costs to offer content in the U.K. and Ireland, and will delay further expansion until profitability is restored.
But it takes more than knowledge and strategy to keep a great company going. And I do want to acknowledge that Netflix was a great company.
There's the disconnect. At every major junction in past months, the Netflix leadership (i.e., Hastings) has acted as if good judgment and customer insight have suddenly disappeared.
Investors no longer believe that Hastings (or Netflix) really understand their own customers anymore. When a company loses touch with its customer base, they lose the ability to lead. And they lose the ability to predict. Hastings has not only lost touch with the customer base, he's created an adversarial relationship.
You Can't Lead If...
When Your Credibility Is Gone
Why did the stock tank by 37% overnight? Lack of confidence that Hastings is in control. Lack of confidence in his ability to fix the situation. Lack of confidence in his ability to successfully expand in Europe.
Past Is Prologue
Hastings will stay on for whatever reason, perhaps pride. "Wall Street" will take forever to forgive him - if they ever do. Every little error will turn into a big brouhaha and every victory will be ignored. That's the way these things seem to work. More often than not, the stock price languishes for (what seems like) an eternity in the toilet. And then the CEO finally steps down - a year or two later (way too late). Take a look at the list of CEOs who really messed up at the end - Sculley, Capellas, Fiorina, Nardelli, Mozilo, Levin, Smith, Akers, Lay....
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