If you had invested $10,000 in Netflix's (NFLX -2.24%) initial public offering, you'd be sitting pretty comfortably right now. There haven't been too many investing opportunities like Netflix, and investors who bought and held their shares over the past 18 years have made a boatload of cash. With the investment of $10,000, owners would now be sitting on close to half a billion dollars. Let's see how that works out.
Holding through uncertain times
Way back when streaming was still in the future, all of 23 years ago, Reed Hastings and Marc Randolph created Netflix as a mail-order video rental company. Customers paid $19.95 a month for unlimited door delivery of movie rentals. This was in the days when there was a Blockbuster Video store on every block, and video delivery was an innovation. The company slowly took steps to move into new spaces, such as DVD rentals, and by 2002, with 600,000 U.S. members, it went public at $15 a share. The company offered 5.5 million shares at its IPO, netting pre-expense funds of $82.5 million.
The company had two historical stock splits, a two-for-one in 2004 and a seven-for-one stock split in 2015, which means one share at inception got an investor 14 shares after 2015.
Netflix was already a profitable investment after the first decade, with about 800% returns, but if investors sold at that point, before the volatility, they missed out on one of the greatest investment opportunities ever. During those years and the next few years, the company continued to grow, establishing partnerships with companies like Apple to further its inroads and improving capabilities with features such as personalized recommendations. Two major changes happened in that period: Streaming was introduced in 2007, and Netflix began to produce its own films and series. And in the meantime, the subscriber base kept growing, reaching a million subscriptions in 2003 and 10 million in 2009.
The share price began to make major upward movement around 2013, and investors who still held on saw their shares climb a total of almost 24,000% after an ascent that ended in 2018, at which point it entered a period of high volatility. Between 2018 and 2020 the streaming market became more competitive, and Netflix shares lost about half their value twice. Investors may have been tempted to sell at any of those falls, but the price came back by the end of 2019.
Since COVID-19 came along shortly after the beginning of 2020, streaming became even more important as customers turned to home entertainment, and Netflix added more than 10 million paid subscribers for a total of almost 200 million. Shares have continued to soar, surging about double the value and giving initial investors a whopping 41,000% return on investment (as of Friday). For anyone who invested $10,000 at IPO, that's nearly halfway to billionaire status from one investment.
The moral of the story
The COVID-19 lockdown has been staggeringly beneficial for Netflix owners, with shares almost doubling since late 2019, leading to incredible wealth for anyone who invested $10,000 in the IPO and held on.
Is it too late to get in on these amazing gains? Probably, although that doesn't mean growth is finished. The more important lesson to learn from the story, though, is not about Netflix, but about recognizing a company with potential and holding onto that confidence despite ups and downs. The next Netflix may be hovering right now, and investors can seize the opportunity to invest their next $10,000 in nascent companies and enjoy years of long-term growth.