Netflix’s Reed Hastings Still Doesn’t Get It

Cutting his stock option award in half is scant help for investors

   

This year certainly offers many worthy candidates for the worst CEO. They include MF Global’s Jon Corzine, the co-CEOs of Research In Motion (NASDAQ:RIMM), as well as the former leader at Hewlett-Packard (NYSE:HPQ), Leo Apotheker.

And of course, there’s the CEO of Netflix (NASDAQ:NFLX), Reed Hastings. As a sign of the mess he has created, the stock is down about 75% since July.

Interestingly enough, he would have actually been a good candidate for the best CEO of 2010. Keep in mind that he was the visionary who saw the potential for streaming video and created a megabrand.

But this year, Reed looked like he was the CEO of Blockbuster. For example, he proposed the concept of splitting the DVD-by-mail and streaming businesses. But didn’t he realize it would be expensive and create lots of customer confusion? Consider that he wanted to call the DVD business “Qwikster.” After a huge uproar, Reed was quick to kill the idea.

Then he had the interesting proposal to boost prices. Somehow, he thought this was reasonable. But customers didn’t think so. Roughly 800,000 subscribers ditched the service in the third quarter.

So what’s the solution? Well, Reed is going to show some sacrifice. For 2012, he’ll only take $1.5 million in stock options, which is down from $3 million.

Huh? I’m sure many shareholders would say: Why does he need any options? He already owns 2.8 million shares, or 5.2% of the outstanding stock. He’ll also continue to get his $500,000 salary.

The option grant looks like yet another out-of-touch move from Reed. Doesn’t he realize that Netlix needs some real changes — and fast? The competitive environment will intensify in 2012, such as from Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and perhaps even Verizon (NYSE:VZ) and AT&T (NYSE:T). And the costs of licensing content will remain problematic. Oh, Netflix is also expected to lose money next year and will probably need to raise more capital.

So for investors, it’s hard to find any catalyst that will return the stock to its recent glory — no matter what Hastings gets paid.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/2011/12/netflixs-reed-hastings-still-doesnt-get-it/.

©2014 InvestorPlace Media, LLC

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