As the leader in streaming TV services, Netflix (NFLX 0.08%) is in a class by itself. The streaming video pioneer, which popularized binge-watching, reached over $160 billion in market capitalization in 2019, even eclipsing Disney (DIS 2.29%) at one point in the year.
The surge in share price since Netflix entered the streaming market has been both explosive and persistent. As a result, any investor lucky enough to buy in during the early days -- and hold shares through the volatility -- has made a potentially life-changing purchase equating to returns of over 27,000%.
Netflix went public in late May of 2002. At the time, it counted roughly 1 million subscribers who paid a monthly fee for access to its library of DVD movies and TV shows. Its most mature market was San Francisco, where its red envelopes shuttled to and from roughly 4% of households.
CEO Reed Hastings and his team thought they had a long runway for growth in fighting with rivals like Blockbuster, as DVD technology found its way into more households. Netflix's tech-based approach made it scalable, and its software roots gave it an edge over traditional retailers, management said back in 2003.
Those assets persuaded the company to price its IPO at $15 per share back in 2002. Netflix sold roughly 6 million shares at that price and raised about $86 million after expenses. That valued the company at less than $500 million.
Early investors were richly rewarded as Netflix battled with -- and beat -- major competitors like Blockbuster, Walmart, and Redbox for the DVD-by-mail niche. The stock reached a $15 billion market cap in 2011, in fact, translating into a 30-fold return for people who held for a decade after the IPO.
The company would go on to blow past those returns, but not before ensuring that shareholders earned their gains by withstanding a few bouts of epic volatility.
Streaming and splits
The streaming business was Netflix's real growth catalyst. Executives saw early on that there was much more potential for that entertainment channel, and so they launched a service in 2007 that supercharged subscriber growth. That move, combined with the shift into offering exclusive and original content, made the company a global powerhouse in the entertainment industry.
Along the way, Netflix only split its stock twice, once in 2004 (2-for-1) and again in 2015 (7-for-1). The two splits didn't impact the overall value of the company, but they did ensure that any investors who held through them both would own 14 times their initial number of shares.
So now we have everything we need to calculate your return if you had owned Netflix stock since the beginning.
For simplicity, you could have bought 7 shares for $105, which would have become 98 shares today after the two stock splits. Here in late 2019, Netflix stock is trading for around $314, which means your $105 buy would be worth over $30,770. For context, an equal investment in the S&P 500 would be worth $290 today for an almost 200% return in 17 years.
Netflix's 27,000% return since its IPO makes it one of Wall Street's best performers, and those gains are mostly notable for how unusual they are. The other key factor to remember is that shareholders had to endure multiple periods of massive volatility and share price declines, including several 50% slumps, on the way to earning that phenomenal growth.
Together, these facts mean that, while rare, life-changing stock purchases are possible over periods as short as a dozen years. But investors also have to be willing to pay a price in volatility and patience to even have a shot at these massive payouts.