Once upon a time when the Backstreet Boys were at the top of the Billboard 100s and PalmPilots were at the forefront of consumer technology, the 39-year-old CEO of a fledgling online DVD rental company approached the giant of his industry with a pitch: Will you buy us for $50 million?
Reed Hastings, the CEO of Netflix, which went public 15 years ago Tuesday, was reportedly laughed out of the room in 2000 by aides to Blockbuster CEO John Antioco. But Hastings got the last laugh.
Ten years later, Blockbuster was filing for bankruptcy, partly due to the rise of streaming services like Netflix, while Netflix was boasting a market capitalization beyond what Blockbuster had ever reached in its lifetime: $7.5 billion. And on the 15th anniversary of Netflix’s IPO, shareholders still see much promise in the company. In the past decade-and-a-half, Netflix’s stock market returns have even outpaced those of tech giants touted for their industry-changing innovations and broad customer base: Apple and Amazon. During that same period, shares of Apple have multiplied in value 84 times over and Amazon’s have multiplied 49 times over. But Netflix? Its shares have grown in value 130-fold, for a market capitalization of $68 billion.
Now, Netflix is the stock with the second highest returns on the S&P 500 over the last 15 years, behind Monster Beverage Corp.
Had Antioco changed his mind about Netflix and purchased some $50 million worth of shares in 2002, Blockbuster’s stake in Netflix would today be worth $6.5 billion. Investors who put about $8,500 into the company at its IPO would have a stake worth at least $1.1 million today.
In fact, Netflix, which launched its streaming service in 2007, has grown its user base 162-fold since its IPO: from about 600,000 users in the U.S. alone in 2001, to more than 98 million in 190 countries by 2017. And each day, those users watch 14,269 years worth of content.
Shareholders were also quicker to recognize Netflix’s potential: Shares of Apple merely doubled in value in the 15 years following that company’s 1980 IPO, while Amazon’s increased 114-fold in the 15 years following its 1997 offering, compared to the 130-fold increase Netflix enjoyed over 15 years.
And even though annual revenue has increased 57 times over in the past decade-and-a-half to $8.8 billion, shareholders don’t seem to think Netflix has hit a plateau. In recent years, Netflix has been spending heavily to create original content and push deeper into international markets. Two years ago, its international business accounted for just 16% of its revenue. Today, that’s ballooned to about 42%.
Netflix’s price to earnings ratio, which measures the amount investors are willing to pay for profits, also suggests a continuing hunger on Wall Street for the stock. While Apple shares are trading at a price to earnings ratio of 18, and Amazon shareholders are willing to pay about $182 for single dollar of profits, Netflix shareholders are willing to drop some $207 for a whiff of those higher future returns. That high price suggests that investors think Netflix’s growth will be just as rapid in the future as it’s been in the recent past.
