I don't have to think hard to find my most successful investment. It was 20 years ago -- this month -- that I bought a broken IPO by the name of Netflix (NFLX -0.63%). October 2002 also happened to be the same month that Netflix shares would hit an all-time low. I didn't nail the bottom, but I was close enough to make this jaw-dropping claim -- Netflix is a 540-bagger for me after Wednesday's blowout earnings performance.
It's a bittersweet victory lap for me. I sold 80% of my stake within a couple of months, a mistake that literally cost me millions at the stock's peak last year. I would whittle down my stake over the years to just 2% of that initial position.
The pain is real. The price to have a front seat to the Netflix story wasn't cheap, but the lesson is clear. You can knock Netflix down. It finds a way to come back even stronger.
Image source: Getty Images.
Back to the future
Let's start with the latest bear crusher, a fresh zinger since it happened this week. When Netflix kicked off 2022 with back-to-back quarters of sequential declines in subscribers -- shedding nearly 1.2 million streaming paid memberships worldwide -- naysayers were skeptical of Netflix guidance calling for a million net additions for the third quarter. It wasn't an overly optimistic forecast. Netflix would go on to grow its audience by 2.4 million accounts, doubling the memberships it had lost through the first six months of the year.
Pick a debacle, any debacle. Qwikster? Okay. Netflix became the laughingstock of Wall Street in 2011 when it announced that it would spin off its original disc-mailing rental service into a new platform called Qwikster. It was already selling streaming as a slightly cheaper option than the DVD-based offering that included digital delivery, but subscribers and investors revolted. Netflix had to shift gears three weeks later.
Mention Qwikster in a group and the consensus will be that it's a failure, but Netflix had it right all along. Streaming was the future, and even the video game component that Netflix was considering for Qwikster is an exciting engagement tool that is only getting louder and stronger in the current game plan. Qwikster for all practical purposes now resides at Netflix's DVD.com domain. More importantly, the stock is a 12-bagger since the "fiasco" that Qwikster was supposed to be happened.
You can dig even deeper into the time capsule to find a time when Blockbuster and then Redbox would be the end of Netflix. Those arrows missed, and Netflix stock created life-altering wealth for those who held on during the darkest stretches. When Lilyhammer premiered exclusively on Netflix in early 2012 it didn't seem as if original content was going to be game changer. The stock had shed half of its value seven months later. Netflix would go on to become the best-performing stock in the S&P 500 in 2013 and again in 2015.
Even Netflix announcing earlier this year that it would offer an ad-supported tier was seen by some as a sign of desperation. It wasn't until Netflix pointed out that it should be able to make as much money from someone on the ad-based plan launching next month as from the higher-paying ad-free subscriber that things started to "ad" up for investors.
Netflix won't always get it right, but time has a funny way of cleaning up those mistakes and humbling the platform's loudest critics. It's the top dog of streaming media stocks today. There doesn't seem to be a reason why that won't continue to be the case tomorrow.
