What can we learn from the 25 years since Netflix’s founding about how to approach long-term investing?

Netflix is synonymous with the world of streaming, helping the world transition to a new way of digesting media content.

Today, Netflix is ingrained into the social consciousness, influencing everything from workplace “watercooler” chats to pop culture and dating slang. It has come to signify the changes we’ve seen in how our society functions over the last 25 years.

This is the “Netflix generation”. But the company hasn’t always had it easy.

If you rewind all the way back to its founding in 1997, you can follow the story of how a small mail-based rental business went from near anonymity to market domination over the course of 25 years. Discover the lessons it teaches you about the best way to approach long-term investing decisions.

Netflix began life as a small rental business that was dwarfed by the rental giant Blockbuster

In the mid-90s, while carpooling between their homes and offices, two successful Californian businessmen, Marc Randolph and Reed Hastings, came up with the idea for a mail-order, computer-based rental service for home-entertainment media.

On 29 August 1997 they founded Netflix. The company set about utilising the Amazon model that Randolph admired so much to create a way for consumers to order a large category of transportable items, made easily accessible through the advent of the internet.

The business was entering a $16 billion home-video sales and rental business marketplace, largely dominated by the rental giant Blockbuster.

Randolph and Hastings met with Jeff Bezos of Amazon who offered to acquire Netflix for between $14 and $16 million. For many, this might have seemed like a great offer and a reasonable time to make a sale.

In the early 2000s, the dot-com bubble burst and Netflix suffered significant losses. Hastings and Randolph offered to sell the company to Blockbuster, but their offer was declined.

The company persevered as the demand for DVD rentals and subscription services began to grow, eventually leading to Netflix rebounding with a surge in its value throughout the mid-2000s.

When investing, it is easy to react to short-term market trends and make knee-jerk decisions regarding your investment portfolio. It might have been easier for Netflix to exit the market during tough times – but persevering saw them reap rewards in the long term.

Remember your financial plan has a long-term view. Working with a financial planner to continually assess your investments and maintaining a patient outlook can lead to positive returns over time.

Netflix’s transition from mail-based rentals to online streaming saw it become a billion-dollar company

In January 2007, the company launched its streaming media service, which provided on-demand video entertainment through the internet. At the time, the company was only able to list 1,000 films for streaming compared to 70,000 titles in its DVD library and the revised concept was still in its early stages.

The company benefited from a leap forward in internet technology in the mid-2000s as data speeds and bandwidth costs had improved to sufficiently allow consumers to download shows directly from the internet.

By 2008, Netflix had begun to slowly phase out its rental-disc business by offering its current subscribers access to its streaming service at no additional cost.

Between 2010 and 2013, Netflix rapidly expanded its content library and subscriber base leading to its valuation surging past the $1 billion mark. It began to expand into new markets and create original content.

Moving your money in and out of equities to try and capture the market highs and avoid the lows is often referred to as “market timing”. It is a risky strategy and even the most experienced investors rarely buy at the bottom and sell at the top of the market.

If you sell your investments during a downturn, you could potentially lose out on gains if the prices rebound.

If you sold your Netflix shares when the dot-com bubble burst, you would have lost out on the colossal gains made during its transition to a streaming service. It’s often said that it’s “time in the markets, not timing the market” that counts – that is, it can pay to hold investments for the long term rather than trying to dip in and out of the market.

Netflix dominated the home-entertainment market and became the face of the streaming industry

Netflix saw another period of rapid growth between 2013 and the 2020 pandemic. Through creating a diverse range of specially tailored original content and expanding into new markets, Netflix saw its subscriber base grow to over 220 million and its value rise to more than $100 billion.

Even with its recent downturn, due to a slowing down of new subscribers in the face of growing competition and a cost of living crisis reducing household disposable income, the company is still one of the most valuable in the world.

If Netflix’s history has taught you anything, it’s not to bet against them finding a way to continue surging forward.

There are a few key takeaways when it comes to long-term investing:

  • Emotional trading tends to hamper investment returns
  • Patience, and riding out short-term fluctuations, can help you to achieve long-term gains
  • Long-term investing can allow you to compound any earnings you receive from dividends.

Netflix has gone from a minnow in the home rental industry to a goliath in the streaming market over the course of 25 years. It would have been easy to have bailed on the investment at various points over the last few decades. But long-term investing requires patience.

Working with a financial planner can give you peace of mind regarding your long-term planning and help you avoid any short-term investing mistakes.

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Please note

Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.