It’s time again for Do This, Not That.
Do this: Netflix founder and CEO Reed Hastings continues to amaze. At last week’s Consumer Electronics Show, where CEOs compete to make stunning announcements, I believe he won the prize by revealing that Netflix, previously available in about 60 countries, would suddenly become available in nearly 200 countries, all at once, starting right then. The audacity of his vision seems boundless. Remember that not many years ago his business rented DVDs by sending them through the mail; this year it will produce 600 hours of original programming and stream it all online to 69 million subscribers, including over 40% of U.S. homes. Investors value the company at $50 billion.
Doubters point out that Netflix, like Amazon, often reports slender profits, but they overlook two crucial facts. One is the reality that stock prices are based on expectations, not past performance. The second and more subtle reality is that GAAP profits aren’t the best measure of performance. What investors really care about is the cost of the capital they’ve put into the business and whether operating profits exceed that cost. Measure Netflix by this measure, which is called economic profit, and the company turns out to be hugely profitable: Its economic profit has rocketed from -$14 million in 2002 to $42.5 billion today (data from EVA Dimensions). No wonder investors love it.
I make no predictions of Netflix’s future. In the digital world, fortunes can reverse in an eyeblink. But Hastings has already established himself as one of the great disrupters.
Not that: I hate to keep pounding on Volkswagen CEO Matthias Müller, but it can’t be avoided. He spent this week in the U.S., and while the visit was a good idea in theory, it was a disaster in practice. On Tuesday, regulators in California, the ones who first revealed that Volkswagen had designed its cars to cheat on emissions tests, formally rejected the company’s proposal for fixing the cars, saying it didn’t satisfy legal requirements. On Wednesday, Müller met with an EPA official in Washington. The meeting was reportedly very short, after which the agency issued a two-sentence statement that said nothing.
But before heading to Washington from the Detroit Auto Show, Müller gave an interview to NPR in which he tried, incredibly, to deny that the company had done anything wrong. “We didn’t lie,” he said. “We didn’t understand the question…. We had not the right interpretation of the American law…. One reason could be a misunderstanding.” His PR people realized immediately that he had blown the interview, but when they issued a statement to repair the damage, they just made it worse. They suggested that he simply hadn’t expressed himself well in English, “which may have resulted in some confusion.”
Actually, there’s no confusion at all. A very short English word, “cheat,” would have served Müller well on this trip. I wonder if he and his handlers know the word “clueless.”
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What We’re Reading Today
GE sells appliance business for $5.4 billion
The buyer is China’s Haier; a coup for GE CEO Jeff Immelt, as he unloads the business for $2.1 billion more than the agreed upon price that the company had in place with Swedish brand Electrolux. The Electrolux deal fell through due to antitrust concerns from regulators. For Zhang Ruimin‘s Haier, it’s an opportunity to grow a foothold in the U.S. Fortune
Obama admin proposes $4 billion push into self-driving vehicles
The 10-year proposal is the first step by the federal government to build regulation around autonomous vehicles. U.S. Transportation Secretary Anthony Foxx also said that the government will grant up to 2,500 exemptions for auto makers to test the cars on U.S. roadways. The proposal will be wrapped into President Barack Obama‘s budget plan for 2017. USA Today
American Apparel rejects takeover bid from founder
The $300 million proposal from Dov Charney, which includes support from three investment funds, did not offer enough. The company would be willing to hear a revised offer from the funds, but it would also need to pass a judge’s eye by Wednesday, since American Apparel’s lenders have a competing plan to move the company out of bankruptcy. That could be a high hurdle, as all the creditors have agreed to the other plan. Reuters
Foursquare CEO steps down
After raising $45 million in funding at what’s believed to be a deep discount to Foursquare’s $650 million valuation in 2013, founder and CEO Dennis Crowley will transition to chairman. Included in the funding terms, which values the company at $330 million, is a stipulation that in the event of a liquidation the new investors will receive their money first. It’s a significant step back for a startup once considered a social media darling. Operating chief Jeff Glueck will assume the CEO spot. WSJ
Building a Better Leader
Helping with student loan debt…
…has become a new way to attract quality talent. Companies like PricewaterhouseCoopers and Natixis Global Asset Management give between $1,000 and $5,000 to employees to pay back loans. Associated Press
Can technology actually add jobs?
Despite others pointing to the opposite, one researcher believes that technology advancements will add 25 million jobs over the next 15 years. Fortune
In order to ensure your mentoring efforts work…
…make sure you’re not doing it simply to build your resume. SmartBrief
At the GOP Debate
Trump, Cruz drop their gloves
After operating under an informal truce in previous debates, GOP frontrunners Donald Trump and Ted Cruz set their sights on each other. Trump continued his line of questioning around Cruz’s Canadian birth, while Cruz said that Trump is just growing concerned because of his dropping poll numbers. The back-and-forth left little time for other candidates, including Marco Rubio or Chris Christie. NYT
Cruz feels the heat
Cruz didn’t just become Trump‘s target, but all the candidates seemed to focus in on him as he’s become a favorite in Iowa. Rubio called him a “flip-flopper” while Jeb Bush, Ben Carson, and Chris Christie attacked Cruz’s exchanges with other candidates. Trump benefited from the reduced exposure, and he’s still the frontrunner nationally. Washington Post
Clear favorites begin to stand out
While Cruz and Trump remain the favorites, Rubio and Christie have kept their outside hopes alive. Carson and John Kasich, however, hardly got a word in edge-wise, leaving them on the outside looking in. CNN
Up or Out
Isabelle Kocher will become the CEO of French energy company Engie in May. Fortune
Fortune Reads and Videos
Rupert Murdoch seems to be tightening his grip…
…on his media empire. And squeezing out his lieutenant Roger Ailes. Fortune
Prominent Bitcoin developer calls the currency a failure
Mike Hearn blames politics and technology. Fortune
St. Louis Rams fans are suing the Los Angeles Rams
The suit centers around game tickets and merchandise sales. Fortune
Goldman Sachs agrees to $5 billion settlement
It would resolve an investigation into Goldman’s sale of mortgage bonds in the run up to the financial crisis. Fortune
First Lady Michelle Obama turns 52 on Sunday. Biography
Former boxer and political activist Muhammad Ali turns 74 on Sunday. Biography
Radio host Robert F. Kennedy, Jr, son of Robert F. Kennedy, turns 62 on Sunday. Biography
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|Produced by Ryan Derousseau|