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Netflix Sketched Out Its Plans To Be A Streaming Company 15 Years Ago

This article is more than 8 years old.

A tech company which has grown up in plain sight of us as a public company for 13 years is Netflix.

Netflix IPO'ed in 2002. However, they actually filed to go public in April 2000. They were hoping the window would stay open but the dot com crash didn't cooperate. In the year prior to filing to IPO, Netflix did $5 million in revenues and had a loss of $30 million. When they finally were able to successfully go public in 2002, their year prior revenues had blossomed to $75 million but losses were still $38 million.

Just to put it in perspective, in the last year for Twitter as a private company, they had revenues of $317 million and losses of $79 million.

But Netflix needed to IPO in 2002, even though the public wasn't clamoring for new tech deals. They would have run out of cash otherwise. At the time they filed to IPO, Netflix only had $16 million in cash left. They used part of their IPO proceeds, which raised $86 million for them, to pay back $13 million in debt.

The IPO closed its first day up 12% at $1.20/share in today's prices.

In 2002, if you go back and read the press articles, people worried about Netflix's history of losses. Potentially fierce competition also seemed at their door. Most notably from Blockbuster. However, people were also worried that Disney had just backed Movies.com and that it would start to make a big push in its space.

Netflix has always had doubters.

I loved this headline from Barron's in 2007:

Blockbuster Ushers In Pain for Netflix

Netflix had decided to reduce its monthly price by $1 a month to go against Blockbuster and Cantor Fitzgerald wasn't happy: 

Competition from Blockbuster has been wreaking havoc with Netflix's business -- more so than Cantor Fitzgerald had anticipated. Also, the ramifications may be felt more deeply, and for longer, than expected

I enjoyed this note from April 2009, in which Lazard analyst Barton Crockett put a "sell" rating on the stock and suggested that Netflix should consider selling itself entirely because of intensifying competition from YouTube. Had Reed Hastings listened to Crockett, he would have sold Netflix for its then price of $7 a share in today's dollars. (Interestingly, Barton is a now a "raging bull" on Netflix with a $130 price target.)

Even this past summer, David Einhorn took a shot at Netflix's business model, and suggested that House Of Cards was as sleep-inducing as taking Ambien.

Netflix has always had its critics, but it's also had its supporters in the public markets. And, if Hastings has held on to the 15% of the company he owned when it IPO'ed in 2002, his shares are worth almost $7 billion today.

Most people think that Netflix started as a DVD company and then morphed into an online streaming company later. When the company made this shift loudly in 2011, the stock took an enormous hit, dropping from $40 to below $10. It's since gone up more than 10x through showing impressive subscriber growth in streaming. Yet, the move to streaming had initially worried investors as they thought it was low margin and not what the public wanted.

In late 2011, Janney Montgomery Scott analyst Tony Wible said: "The new baseline of sub metrics is troubling, management credibility has crumbled, international adoption is weak (as we suspected), content costs are mounting and it is clearer that the DVD business accounts for the vast majority of profits.... Management has failed to rebuild faith in the stock, which is still expensive and mispriced by value standards.... We believe the Netflix model is unsustainable, as the company faces rising costs that it hoped it could pass onto its subs, which appear unwilling to do so."

But Netflix didn't just decide to take a chance on streaming. It laid out its strategy for all to see back in 2000.

Even then, Netflix didn't see itself as a DVD company - although that's where they made all their money at the time. They saw themselves as a movie recommendation company. They chose to do that predominantly as a DVD channel but they pointed out that they planned to offer movies over the Internet when technology allowed them to do so.

Go back to the opening 2 paragraphs from the 2000 S-1:


Then later in the filing:



Netflix has delivered on all 3 of those differentiator points: personalized recommendations, multiple consumption options, and compelling value.

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