Key insights
- An analysis of Netflix's historical stock performance highlights significant returns over the past 20 years, dwarfing the S&P 500. While past performance doesn't guarantee future results, the article suggests Netflix is reasonably valued currently, with potential for further growth in the streaming and advertising sectors. This may have a slightly positive influence on the broader market sentiment towards growth stocks.
It's fun to play what-if games with stocks -- unless doing so makes you cry. And this one might: What if you'd invested $1,000 in shares of Netflix (NFLX +0.27%) 20 years ago?
Here's a look at the answer.
If you had plunked $1,000 into Netflix 20 years ago, in 2006, that stake would now be worth $227,855. Jeepers, right? That's a total gain of 22,676%, and an annualized gain of 31.17%. In contrast, the S&P 500 index (consisting of 500 of America's biggest companies) averaged only 9.1% (or 10.4% with dividends reinvested), turning $1,000 into $5,712 (or $7,253, with dividends reinvested). Those are still respectable numbers for the S&P 500, but Netflix blows them away.
Remember, though, that 20 years ago it wasn't clear just how terrific a performance Netflix would deliver. In 2011, for example, it announced that it would split its operations in two, focusing on streaming and labeling its DVDs-by-mail business Qwikster. Its shares sank more than 75% and the company lost millions of customers. It wouldn't have seemed unthinkable to sell your shares then, if you had lost faith in the company. Good companies do make occasional mistakes, though, and they often rise above them, as Netflix did.
It went on to become a major producer of original content for its streaming business, and it successfully added many more subscribers. Netflix now boasts that "We are entertaining over half a billion people in more than 190 countries and 50 languages..." The company is raking in ad dollars, too, now that it's showing ads to some subscribers -- with $3 billion expected in 2026.
Is Netflix worth investing in now? Well, maybe. Its shares are not exactly cheap, but they're not wildly overvalued, as they often have been, either -- with a recent forward-looking price-to-earnings (P/E) ratio of 30, a bit below the five-year average of 32.