On Friday, shares of streaming giant Netflix (NASDAQ:NFLX) were down more than 8% by 11:00am ET after word got out that chairman and co-founder Reed Hastings is stepping away from the company.
For many people, Hastings has been the face and the driving force behind Netflix. He is not running again at the annual meeting in June and plans to spend more time on philanthropy. After nearly three decades of guiding Netflix from a DVD-by-mail idea into a worldwide streaming leader, his exit lands at a moment when the company is trying to figure out what comes next.
One reason investors are watching so closely is that Netflix is still looking for its next big growth driver. The company recently walked away from a costly effort to buy Warner Bros Discovery (NASDAQ:WBD), a deal that could have brought in blockbuster franchises such as Game of Thrones. Netflix officially dropped the pursuit on February 26. The stock was down more than 18% from the initial bid in December, but it has climbed about 21% since the company backed off.
Even with the bounce, it is not all smooth sailing. Competition across streaming keeps getting tougher, and Netflix is trying more levers to stay ahead, including an ad-supported tier, a bigger push into gaming, and a serious move into live sports. The company beat first-quarter revenue and profit expectations, but its earnings outlook for the current quarter came in below what analysts were looking for. It is also on pace for its slowest quarterly revenue growth in about a year.
Now that Hastings is leaving, investors are likely to focus on a simple question: can Netflix’s price increases and expansion into live programming make up for revenue growth that is starting to cool? Netflix is still a dominant player, but it is clearly in the middle of a transition. If you own the stock, or you are thinking about buying, it is a situation that calls for extra caution.