3 Reasons You Will Forgive Reed Hastings


It's probably a good time to settle on a derisive nickname for Netflix (NAS: NFLX) CEO Reed Hastings.

Do we go with the low-lying fruit in "Greed Hastings"? After all, it was his July decision to raise rates by as much as 60% for some of the company's subscribers that kicked off the brand emaciation. Do we instead mock the ham-fisted apologies in which he argued that Netflix was right -- it was just moving too fast? "Reed Hasty," anyone?

Or -- better yet -- do we combine the two nicknames to encapsulate the insensitive price hike and the rushed Qwikster fiasco?

Ladies and gentlemen, I present you Netflix CEO Greed Hasty.

Hastings is a good guy. He deserves better than this. He's also a smart guy, even with this summer's colossal misjudgments. The only real break that he's gotten lately is that Saturday Night Live is 90 minutes long.

The weekly comedy show runs through two performances every Saturday during its live season. It goes through two hours' worth of material during a dress rehearsal before a studio audience at 8 p.m. The weakest 30 minutes are then scrapped out of the show that is broadcast live on NBC at 11:30 p.m.

One of the scrapped sketches last month was a brutal lampooning of the Qwikster explanation that Hastings and DVD chief Andy Rendich uploaded to YouTube.

"We know it's off-putting to see the CEO of a powerful company rocking a goatee and a teal shirt, but trust us," says Jason Sudeikis, channeling Hastings. "We know what we're doing."

Anyone who has seen Netflix's stock fall from nearly $305 three months ago to yesterday's close of $77.37 knows that Sudeikis' real zinger was the one at the end. Clearly Netflix does not know what it's doing.

You don't like Hastings right now. If you're a shareholder, you hate that your portfolio has been punished as a result of your faith in him. If you're a subscriber -- or ex-subscriber -- you resent the bait and switch of being offered streaming at no additional cost for four years until the tollbooths were installed last month.

However, you will eventually forgive him. Let's go over a few of the reasons that will happen.

1. The alternatives are lousy
The nearest competitors to Netflix when it comes to streaming -- Hulu and Amazon's (NAS: AMZN) Prime -- are poor fits. Hulu is free but limited to computers. Hulu Plus costs the same $7.99 a month as Netflix. It does offer a broader range of current television episodes but is sorely lacking in movies and depth of content.

Amazon does offer a growing catalog of digital videos at no additional cost to those paying $79 a year for subsidized shipping, but Amazon has yet to break out the exclusive streaming deals the way that Netflix has for Mad Men, the upcoming House of Cards, and the CW content.

"We have essentially all of this content on Netflix," Hastings explains in Monday night's letter to shareholders. Only 2% of its subscribers spend more than half their time streaming Netflix content that is also available on Amazon. It's a nice way of saying that Amazon's content is wafer-thin in terms of relevance to couch potatoes.

On the DVD end, Dish Network's (NAS: DISH) Blockbuster Total Access is the only significant competitor for discs by mail. Blockbuster's product may be superior in that it also offers video games, in-store exchanges, and in some cases new releases four weeks before they are available on Netflix, but the monthly service costs $2 more a month. It doesn't make sense to bolt from Netflix because of a price hike into the hands of a more expensive service.

Movie buffs who don't mind driving to pick up and return discs can turn to Blockbuster, Coinstar's (NAS: CSTR) Redbox, and NCR's (NYS: NCR) Blockbuster Express. These options may be cheaper for light-volume users, but they are far more inconvenient.

2. Founding CEOs stick around
It isn't easy to boot out helmsmen who also just happened to create the company. Whole Foods Market's (NYS: WFM) John Mackey was caught posting ethically inappropriate messages on an investing forum. He bounced back.

Steve Jobs was shown the door at Apple (NAS: AAPL) , but his prodigal-son return is a textbook example of the power of original visionaries.

Headstrong founders aren't the type to resign on their own, and it's hard to sway the board to repeat Apple's miscues in dismissing Jobs in 1985.

I certainly don't want to compare Hastings to Jobs, but history does vindicate Hastings. Investors felt he was nuts for launching a preemptive price war against a phantom opponent several years ago. Couch potatoes were left scratching their heads when Netflix began streaming in 2007. History is unlikely to spin these summertime blunders the same way, but Hastings swings for the fences. He'll be back to bat in a couple of innings.

3. Netflix is still a long-term success story
It's brutal to see a stock shed nearly 75% of its value in a matter of months, but this essentially puts the stock back to where it was in early April of last year. Owning Netflix has been painful over the past three months, and more-recent investors are deep in the hole.

However, shares of Netflix have still roughly tripled over the past five years. We're still looking at a 10-bagger since its IPO nine years ago.

Netflix has been -- and will continue to be -- a volatile growth stock. The stateside subscriber exodus and the projected lack of profitability during the early part of next year will weigh on the shares for now. However, when it does bounce back it will continue to be with Reed Hastings -- and not Greed Hasty -- at the helm.

You'll forgive him, and not just because you really don't have much of a choice.

If you want to follow this saga, track the latest news by addingNetflixto My Watchlist.

At the time thisarticle was published The Motley Fool owns shares of Whole Foods Market and Apple.Motley Fool newsletter serviceshave recommended buying shares of Coinstar, Amazon.com, Apple, Netflix, and Whole Foods Market.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.