From binge-watching our favourite TV series and films to learning about people and places through documentaries, Netflix has become the go-to means of entertaining ourselves anytime, anywhere, without irritating interruptions from commercials and no major commitments if you exclude the measly monthly fee. What started out as a DVD rental business has come a long way, establishing itself as the world’s leading streaming entertainment service and transforming the way we watch movies and TV shows.
Netflix has grown slowly yet steadily, making a $6.5 million profit on revenues of $272 million by 2003 and hitting 4.2 million members by 2005 after having 35,000 different films available for its users to enjoy and having shipped out 1 million DVDs every single day. By the second quarter of 2020, Netflix has 193 million paying streaming subscribers worldwide, 72.9 million of which are from the United States.
A brief history of Netflix
In 1997, at the height of the DVD rental industry, Reed Hastings and fellow software executive Marc Randolph co-founded Netflix to offer online movie rentals. Originally the company appeared to be just another upstart DVD rental business with the only difference being the mail-order element in its operation. Randolph in particular, admired the e-commerce company Amazon and wanted to find portable items that could be sold over the internet using a similar model to Amazon’s.
Initially, they considered using VHS tapes, but these were too expensive to stock while they were considered delicate to ship so they opted for DVDs instead. The company launched with just 30 employees and 925 titles available, almost the entire catalogue of DVDs at the time. Little did they know that Netflix would be leading the way for digital content in the decades to follow.
In 1999, it adopted a monthly subscription model allowing customers to rent unlimited DVDs at a monthly rate, while a year later, the service was taken up a notch when Netflix started offering recommendations to users by using members’ ratings to predict choices. From then onwards, the company’s membership increased astronomically and by 2005, Netflix ended the year with $4.2 million members, up 60% from the previous year.
As subscriptions continued to rise by leaps and bounds, Netflix moved into streaming which allowed users to watch their favourite movies and shows instantly through their computers, while it moved into original programming with the series House of Cards, produced by David Fincher and Kevin Spacey who also starred in the series. Pushing their luck and risking it all by investing $100 million for two 13-episode seasons, ultimately, both seasons earned several Emmy nominations, increasing the company’s visibility and helping the series become the first online-only web show to have been recognised for its excellence in the television industry.
Since then, ’Netflix’s Original’ content has featured popular series amongst which includes Orange is the New Black, Stranger Things, 13 Reasons Why and hit movies like Extraction, Bird Box and many more. In 2016 alone, the company released an estimated 126 original series and movies, more than any other network or cable channel. The video streaming giant has also partnered with several consumer electronic companies like the likes of Xbox, PS3, Apple products and many more, reaching a wider audience, while it branched out in Canada, the Caribbean and throughout Latin America, eventually expanding internationally.
Today, Netflix can boast being the world’s leading streaming entertainment service and despite stiff competition from other key names like Disney, AT&T and Apple, it has risen to the occasion becoming the largest entertainment and media company by market cap by July 2020.
Although both Randolph and Hastings have given several different accounts of how they came up with the Netflix idea, Hastings is often quoted as saying that he decided to start Netflix after being charged a $40 fee at a Blockbuster store for being late to return a copy of Apollo 13. Whether a true story or a fiction of his imagination used to better explain the company’s business model and motivation, Netflix has certainly brought an end to these fees.
Netflix goes public
Netflix made its initial public offering (IPO) in 2002, selling 5.5 million shares of its common stock at $15 per share on Nasdaq. A month later, the company sold an additional 825,000 shares at the same price, but with members at the time amounting to just 600,000, the stock was slow to take off and only did so until 2009, when it was sold at $8 per share. Since then, the shares have climbed reaching $400 at one point, while it is considered as one of the best-performing stocks in the S&P 500 from 2010 right through 2019.
So what would an initial investment have gotten you? If you had invested $990 at its original price back in 2002 and you held on to your stock through both stock splits, you would have had 924 shares of stock valued at $340,959 as of February 2020 – a whopping ROI (return on investment) of 34,340% over a period of 18 years.
Netflix’s shares split
The company’s shares have split twice since it went public. In 2004, it issued a 2-for-1 split and in 2015, Netflix made a 7-for-1 split. This means that should you have purchased 66 shares when the company went public, then these would have doubled to 132, while with the second split, your 132 shares would have amounted to 924. Although the splits mean that the number of your shares increases by the specific ratio, the total dollar value remains the same compared to pre-split amounts since the split does not add any real value. As of February 2020, the stock has traded at around $369 per share, while it forms part of those all-important FAANG stocks.
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