It’s time again for Do This, Not That.
|Produced by Ryan Derousseau|
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
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