NFLX Netflix Inc

By Tatyana Shumsky 

Spencer Neumann, who on Wednesday was named Netflix Inc.'s new finance chief, joins the video streaming service at a critical juncture in its evolution.

His main objective in the top finance post, analysts say, will be clear from the start: Wrestle with a cash-sucking content development pipeline while convincing investors that efforts to convert original content into more subscriptions and profits ultimately will materialize.

Co-founder and Chief Executive Reed Hastings and Chief Content Officer Ted Sarandos, who have driven transformation away from a licensing-heavy model in an attempt to fend off competitors such as Amazon.com Inc., Hulu LLC and AT&T Inc.'s HBO, will continue to set business and content strategy.

Mr. Neumann's job "is to make sure that the financial engine can support their vision," said Neil Macker, a senior equity analyst with Morningstar Inc.

Mr. Neumann, who joins Netflix from videogame maker Activision Blizzard Inc., was previously a longtime Walt Disney Co. executive who held roles at both Walt Disney Parks and Resorts Worldwide Inc. and the company's ABC Television Network unit. Netflix declined to make Mr. Neumann available for comment.

The move to create more original content has led to a funding gap at Netflix. It takes roughly two years to get a new show from production to screen, and Netflix's investment is tied up for that period with no returns, analysts say. As a result, while the company's earnings and profit margins have grown, it has spent cash more quickly than its operations can replace.

Netflix's spending also has increased as it lured away talented showrunners, including "Glee" producer Ryan Murphy and "Grey's Anatomy" creator Shonda Rhimes.

Mr. Neumann's main objective will be "to instill confidence that this growth is going to translate to cash generation in a few years and a self-funding company," said Matthew Thornton, an analyst with investment bank SunTrust Robinson Humphrey Inc.

Netflix in October said it expects to have negative cash flow of $3 billion in 2018, with roughly the same figure in 2019. The company expects material improvements in 2020.

For now, Netflix has plugged the increase in working capital by turning to the debt market, a move that has concerned some investors, analysts say. Mr. Neumann will need to monitor the company's growing debt and determine what is a sustainable debt load in an environment of rising interest rates, said Mr. Macker of Morningstar.

Recent pressure on the company's stock price adds to the complexity of this balancing act. Netflix previously said it could shoulder a capital structure that is up to 20% to 25% debt, but a decline in the value of its stock could change that calculus, Mr. Macker said. Netflix shares, which closed flat on Wednesday at $267.66, were down 29% from three months ago.

Mr. Neumann succeeds longtime Netflix finance chief David Wells, who in August announced plans to resign after 14 years with the company, eight of them as CFO.

Mr. Neumann was most recently finance chief at Santa Monica, Calif.-based Activision Blizzard, which on Monday said it would fire him for a reason unrelated to the company's financials.

An Activision Blizzard spokeswoman declined to comment beyond the company's press release and filing. A Netflix spokesman declined to comment but pointed to the company's statement on Mr. Neumann's appointment.

"Spencer is a stellar entertainment executive and we're thrilled that he will help us provide amazing stories to people all over the world," Mr. Hastings said in the statement.

An executive dismissed for cause typically forfeits whatever earned but not vested equity and other severance they were due to receive, lawyers and recruiters said.

For Mr. Neumann, that figure could be substantial, recruiters said. Mr. Neumann joined the videogame maker in May 2017 under a contract that was due to expire in April 2020, according to a regulatory filing.

The contract included a $14 million equity grant that would vest in four installments over four years, and could be worth as much as $23 million, depending on company performance. Mr. Neumann's compensation also included a $2 million signing bonus that fully vested in May 2018.

Write to Tatyana Shumsky at tatyana.shumsky@wsj.com

(END) Dow Jones Newswires

January 02, 2019 20:51 ET (01:51 GMT)

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