New Netflix CFO to Tackle Cash-Flow Issues -- WSJ
January 04 2019 - 3:02AM
Dow Jones News
By Tatyana Shumsky
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 4, 2019).
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 04, 2019 02:47 ET (07:47 GMT)
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