Netflix - The Best Performing S&P Stock Of The Past Decade

As the market rises in a new year, investors now keen to know the best performing S&P stocks over the past 10 years. Suffering from the great recession in 2010, the index has returned nearly 185%. 

When it comes to the best-performing stocks, how can we forget the giant stock Netflix, which is still gaining huge popularity worldwide? Needless to say, Netflix was the best performing stock for 10 years delivering a whopping 4,181% return outperforming all the current members of the S&P 500. 

Netflix, which is currently valued at $148 bn has managed to deliver these impressive returns for the past 10 years, right after a modest start with a few billion dollars in valuation in 2010.

The top-notch company now is considered as one of the 40 most valuable companies in the US as it has received a lot of bullish support from Wall Street. Also, the street continues to support Netflix's future growth with powerful valuation multiples. 

This valuation sometimes forces investors to focus on value metrics such as profit and cash. 

Nowadays content production is counted as one of the highly competitive and expensive businesses. Also, top-notch cash-rich competitors ranging from Apple to Disney force Netflix to uplift its expenditure more on content. 

Netflix Originals constitutes a huge percentage in its growth strategy. This is because, in 2019, Netflix spent a total of $15 billion on content. 

History of Netflix

In 2010, Netflix’s total subscribers had just over 12 million paying $9 per month. That's because of the joy of receiving those iconic red envelopes in the mailbox. The company, then, was worth a few billion dollars. If someone put a bet of $1 million on Netflix’s stock placed in the early months of 2010, it would be close to $43 million today. 

As of December 2019, the company gave a whooping return of 4,181% that beats all the current members of S&P 500, which Netflix joined in 2010 replacing the NewYork Times. 

Apart from its mid-cap days of the company, Netflix currently has a market cap of close to $148 billion, making it one of the most valuable US companies. 

The stock’s sudden rise has confused those investors who concern themselves with profit and cash. The company runs on an operating margin and has a negative cash flow. Furthermore, the cash-rich competitors ranging from Apple to Disney is forcing Netflix to spend more on movies and TV shows to keep customers from cancelling their membership.

Existing threats aren't just hypothetical scenarios for Netflix. The crisis had risen when the company’s CEO Hastings raised the price of monthly membership by splitting DVDs and streaming into separate subscriptions. 

Needless to say, the stocks of Netflix jumped 75% into four months, forcing Netflix to backtrack on then raised $400 million in emergency funding. 

Jay Hoag, a Netflix board member pumped in $200 million in exchange for convertible bonds.

Now the Netflix originals are the pivotal story.

In 2019, Netflix said that it would bomb out $15 billion on the content itself, which is 70% higher than the previous two years. Ted Sarandos, Chief content officer at Netflix said that the company has invested 85% of its spendings on the originals. To make the spending successful, Netflix has borrowed nearly $10 billion which is more than doubling its debt and leaving the company with twice as much debt as equity.  

The Expensive Battle for Content

As Netflix owned some of its originals such as “Stranger Things” that gained worldwide popularity, the company decided to keep most of its content licenses. Those licences are global which means Netflix can pitch its monthly services to subscribers in India, Japan. 

At the end of 2019, Netflix’s member base had jumped up to 158.3 million more than doubling in four years. The company’s growth has been significantly increased by 62% of the total, 51% in 2017, and 36% in 2015. 

Gil Simon, chief investment officer at SoMa Equity Partners said we couldn't have an idea of how Netflix’s content could be widely accepted all over the world. 

In December filing, Netflix divided its subscribers into four main global regions: North America, the Europe, Middle East and Africa region. It has been observed that after North America, the middle east, Africa and Europe holds the biggest million paid membership. 

Netflix’s huge popularity and the company’s willingness to spend makes Netflix a ton of power in Hollywood. 

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