Of all the stocks investors might regret not buying early on, Netflix seems likely to be near the top of many lists. After all, since shortly after its IPO in 2002, shares of the video-streaming juggernaut have returned more than 18,000%.
That raises the question: Are there any stocks on the market today that feel like Netflix did in 2002?
Truly personalized medicine
Steve Symington (Illumina): Illumina may have held its IPO way back in the year 2000 -- or two years before Netflix went public -- so the gene-sequencing technology leader certainly doesn't seem to be the best direct comparison. And Illumina stock has already rewarded early investors handsomely for their patience, rising more than 15-fold from its $16-per-share IPO price.
But much like Netflix in 2002, I think Illumina is only just getting started. With the help of its cutting-edge NovaSeq sequencers -- strong demand for which led to a stellar third-quarter report in October -- the company believes it can lower the cost of sequencing the human genome from $1,000 to $100. In the process, it will make genomic sequencing a low-cost, routine part of the process for medical diagnoses and formation of personalized treatment plans for everything from rare genetic diseases to noninvasive pregnancy testing and cancer.
To that end, Illumina just last month launched its most compact (at 1 cubic foot) and affordable (less than $20,000) sequencing system ever, dubbed the iSeq 100, which should only serve to make its technology more ubiquitous in the medical community.
So even with Illumina stock up big in recent years, I think the lion's share of its gains still lie ahead.
A next-generation entertainment leader
Keith Noonan (Activision Blizzard): In many ways, Activision Blizzard is in a different place than Netflix was back in 2002. Activision went public in 1993 so it's hardly a fresh face on the market. Its share price has also already notched meteoric growth, and its roughly $53 billion market cap means it's far removed from the small-cap status that Netflix had in its early post-IPO days. However, there are also some notable similarities between Activision's business outlook today and Netflix's back in 2002, and these areas of overlap point to opportunities that could translate to more huge stock gains for the video game publisher.
Netflix built the foundation of its business on mail-to-consumer video rental service, then pivoted to prioritize its streaming platform, and is now focused on becoming a leading producer of original content and expanding its global reach. Activision's core business will likely continue to revolve around video games, but the company has broadened its ambitions and is taking advantage of cultural and technological trends in order to secure a forefront position in the future of entertainment.
The company is making a big push into film and television production, building up its merchandising business, and experimenting with new technologies like mixed reality. It's also an early leader in esports, a content category that has substantial momentum behind it and a long runway for growth. Along with the advantages created by an expanding global audience for its content and the benefits the company is seeing from the transition to digital content distribution, Activision has emerging growth drivers that call to mind some of the same initiatives and market conditions that have helped Netflix deliver tremendous returns.
Exclusive content transformed Netflix, and could do the same for this retailer
Matt Frankel (Macy's): While a comparison of Macy's and an early Netflix may sound crazy at first, there's one big similarity. Both Netflix in 2002 and Macy's in 2018 operate with business models that aren't sustainable over the long run. The mail-order DVD business would ultimately give way to streaming video, and Macy's department store model is under pressure from e-commerce and off-price retailers.
Just as Netflix eventually shifted its focus to streaming video and original programming, Macy's is in the process of modifying its focus as well.
The strategy has several components, including monetizing some of its valuable real estate assets, closing underperforming stores, and revamping its loyalty program. And just as Netflix ultimately realized that its most valuable asset was its exclusive content, Macy's is also increasing its focus on exclusive merchandise. The company plans to increase its exclusive merchandise sales from about 29% of the company's total today to 40% by 2020.
This strategy certainly makes sense for Macy's, just as it did for Netflix. After all, a streaming video service that offers the same content as everyone else always has to worry about being beaten on price. Similarly, a retailer who sells the exact same items that are available on Amazon.com and other online retailers for less money is destined to lose the competitive battle. On the other hand, a retailer who sells things that aren't available anywhere else has a durable competitive advantage.
The bottom line
We can't guarantee that these three companies will be able to live up to the high bar set by Netflix. But whether we're talking about the potential for world-changing medical breakthroughs enabled by Illumina, the broader ambitions of Activision Blizzard, or Macy's changing business focus, we like their chances of doing just that. And at the very least, we think investors would do well to give them a closer look.