What's the significance of 2002? It's the year streaming giant Netflix (NASDAQ: NFLX) first listed on the public markets.
The company has forever changed the way people enjoy entertainment by offering them convenience at a very attractive price point, but it wasn't an easy journey. The Netflix story offers a great example of the highs and lows that come with disruption and innovation.
Early investors who held on for the ride from the start have been handsomely rewarded, despite Netflix stock plunging 48% from its all-time high. Here's exactly how well they've done.
Netflix: The rise to the top
The Netflix origin story has all but passed into legend. Founded in 1997, the company was trying to disrupt the long-standing video rental industry by mailing movies (in DVD format) to customers. Netflix knew the internet was the way forward because it provided a level of convenience that brick-and-mortar stores like Blockbuster couldn't match.
But the technology sector crumbled in 2000 as the dot-com crash took hold, and as a private entity back then, the Netflix team felt their only way to salvage the company was to sell it. They approached their archrival, Blockbuster, with a $50 million proposal to acquire Netflix.
Blockbuster famously rejected the pitch.
Netflix pulled through the crisis and generated over $152 million in revenue in 2002 as the popularity of its service picked up steam. Then, in 2007, it leveraged the internet even further by offering customers the ability to stream movies -- no DVD disc required.
It was revolutionary, and Netflix never looked back. It continues to lead the streaming industry it helped pioneer, with over 230 million subscribers signed up. Blockbuster, on the other hand, declared bankruptcy in 2010.
Netflix has become a financial juggernaut
Naturally, the success of Netflix has attracted a stampede of competitors. There are now more than 60 streaming services worldwide that have at least 1 million subscribers, and the top five have all amassed at least 100 million.
As we know, Netflix is no stranger to evolution. It's making some adjustments to attract more customers, especially those at a lower price point. It recently launched an ad-supported tier for $6.99 per month, which is a little cheaper than its $9.99 basic tier and substantially cheaper than its $19.99 premium tier.
That willingness to adapt to changing market conditions has enabled the company to deliver substantial long-term revenue growth -- from $152 million in 2002 to a whopping $31.6 billion in 2022, exactly 20 years later.
Furthermore, Netflix is highly profitable; whereas, its main competitors in the space have struggled to achieve the same level of scale, and haven't reached that milestone. The company generated $4.5 billion in net income during 2022 alone, translating to $9.95 in earnings per share.
The current value of a $10,000 investment in Netflix's IPO
Netflix completed its initial public offering (IPO) on May 23, 2002, at a price of $15 per share. The company has generated so much growth over the years that management elected to execute two stock splits to ensure shares remained accessible to smaller investors.
If you invested $10,000 in Netflix at its IPO price of $15, you'd have acquired 666 shares. Adjusting for the stock splits, you'd actually have 9,324 shares today with a cost basis of $1.07 per share.
Since Netflix trades at $347.36 per share, as of Feb. 10, that translates to a return of 32,321%. In dollar terms, that $10,000 investment in 2002 would be worth a whopping $3.2 million today!
Is Netflix stock still a buy right now? Streaming is a very competitive industry, but Netflix is the undisputed leader and it's running a profitable operation. That's more important now than it has ever been.
That's because if competitors start cutting costs to stabilize their losses, it will help cement Netflix's dominance. Disney, for example, has already outlined plans to cut a whopping $3 billion from its content budget this year. That will directly affect Disney+, the world's third-largest streaming platform.
Overall, Netflix accounts for less than 10% of TV screen time in its core markets like the U.S. and the United Kingdom, and less than 5% in its emerging markets. It has also barely scratched the surface of its opportunity in countries like India, where estimates suggest more than 1 billion people will be connected to the internet by 2030. That leaves plenty of room for growth over the long term.
Netflix stock has performed spectacularly well in its first 20 years, and it's likely to do well over the next 20, too.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
