Netflix's Bear Case Rests on a Number Absent From the 2025 Bonus Plan
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Netflix's bear case rests on a number absent from the 2025 bonus plan.
On September 18, Wells Fargo's Steven Cahall cut Netflix to Underweight. His case: members averaged 1.6 hours a day in the first half, about 8% below the same period of 2023 after adjusting for the password-sharing crackdown and geography.
At Bloomberg's Screentime on September 30, co-CEO Ted Sarandos said of 2% first-half growth in total hours, "we're not growing as fast as I want us to." Cahall's number is hours per member. One co-CEO spoke to the company's metric, not the bear's.
We score the structure on three dimensions.
1. Incentives. The 2025 bonus paid on currency-neutral revenue (35%) and operating margin (65%). Performance shares pay on shareholder return against the S&P 500. Neither has an engagement metric. So neither bonus changes if members watch less. Sarandos was paid $53.9 million for 2025 and co-CEO Greg Peters $53.2 million.
2. Disclosure. In July, Netflix moved its viewing report to an annual first-quarter release beginning in 2027, separate from earnings, "to keep the focus on our primary financial metrics." So Cahall's number will surface once a year.
3. Authority. No disclosed tie-break. In 2024 both said Reed Hastings was "still in the mix" for counsel when they disagreed. Hastings left the board on June 4, and no advisory role was disclosed.
My read: Sarandos has the right instinct inside an architecture built to look past the number he named. The next proxy adding an engagement metric would prove me wrong.
Netflix has answered: revenue and operating margin are its primary metrics. Netflix will report Q3 on October 20, guided to 12% revenue growth and a 33.2% operating margin. Hit both while members watch less, and the board can say the design worked.
Should Leslie Kilgore's Compensation Committee add an engagement metric to the 2027 bonus plan, and against which co-CEO's bonus: Sarandos on content, or Peters on product?
🔗 Source: Netflix CEO Ted Sarandos Shares Disappointment With Pace of Engagement Growth in 2026
