Netflix’s Surprise Earnings in First Quarter Topping $6 Billion… Shares Drop 9% After Founder Steps Down

Global online video service (OTT) Netflix recorded a surprise performance that far exceeded the market’s outlook for the first quarter this year. An ‘earnings surprise’ in Q1 notwithstanding, the impact of the complete management exit by co-founder Reed Hastings (Reed Hastings) sent the stock tumbling 9% on the over-the-counter market. With the absence of a leader after 29 years, investors worldwide are focused on the ripple effects this could have on the global OTT market.

According to Netflix’s announcement on the 16th (local time), operating income in the first quarter came in at $3.957 billion (about KRW 585.95 billion), up 18.2% year over year. Revenue increased 16.2% to $12.25 billion, while net income was reported at $5.283 billion.

This strong performance was driven by growth in subscription revenue and the success of live broadcasts of the World Baseball Classic (WBC). Netflix set an all-time record by securing 31.4 million viewers in Japan alone through WBC coverage. It also contributed to the results with the $2.8 billion penalty received after an M&A deal with Warner Bros. Discovery fell through.

However, despite a solid performance in the first quarter, the company kept its full-year outlook for this year at the existing level. The second-quarter revenue growth rate was projected to be slightly lower than in the first quarter at 13%, while the operating margin was set at 32.6%.

Despite announcing record-breaking results, Netflix’s stock fell by about 9% in over-the-counter trading following the announcement. The market reacted sharply to news of the departure of Netflix co-founder Reed Hastings, who has led the company for 29 years.

Netflix said that Chairman Hastings will complete his term in June and step away completely from the day-to-day management front lines. It has been about a year since he stepped down as chief executive officer (CEO) in 2023.

In a statement, Hastings said, “Netflix has changed my life in many different ways,” adding, “My biggest contribution has been building a company culture that will enable the next generation to achieve incredible success as well.” He plans to devote himself to philanthropic work after stepping down.

The U.S. entertainment outlet Deadline said, “It’s an unusual situation where, despite strong results, the stock moves in the opposite direction,” adding, “it’s likely that the complete exit of founder Reed Hastings heightened investors’ anxiety.”