Netflix Stock: Why “Squid Game” Isn’t Like Investing

Netflix Squid Game show

Author: Tim Phillips

September 27, 2021

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For anyone watching the captivating, Korean-produced series “Squid Game”, you’ll know just how scary (as well as dystopian) the real-life situations are made to feel.

It’s been no surprise that the series has been a recent regular on the “Top 10” list of Singapore’s most-streamed shows on Netflix Inc (NASDAQ: NFLX).

While investing can sometimes feel like we’re taking a huge risk – by taking part in some sort of “game” – the reality is, in fact, a lot more different.

Take investing in the actual streaming provider behind the show; Netflix. The company’s shares have delivered an extraordinary total return over the past 10 years of nearly 1,600%.

That means for every US$1,000 you had invested in Netflix stock back in 2011, you would have turned that into US$17,000 today.

So, for long-term investors, here’s why buying a winning stock like Netflix doesn’t require you to put your life on the line just so you can come out on top.

Betting on streaming

Netflix actually started life back in 1997, co-founded by its current CEO Reed Hastings. While it started life as a “mail-to-order” DVD rental service, it continued to evolve and deliver for shareholders.

The reason? It had to take some level of risk in the face of adversity. In a way, it’s a similar trade-off that was taken by the participants in “Squid Game” – although without the deadly consequences!

However, for Netflix investors that held shares back in 2011, there was a nasty surprise in store as the stock fell nearly 80% in four months.

Back then, the announcement that Netflix was spinning off its DVD mailing business caused shockwaves in the investor community. This was the primary cause of why Netflix’s stock price plunged off a cliff.

Now, nearly a decade later that decision by Reed Hastings has been vindicated. While its streaming business was in its infancy in 2011, it was a huge bet by Netflix on an emerging trend; streaming.

At the end of 2011, Netflix had just 23.53 million subscribers to its streaming service. Out of this number, 1.86 million was from international markets (i.e. those outside of the US).

Not “winner take all” like Squid Game

All investors should remember that the streaming market is massive, both in the US and globally. Unlike a “fight to death” between competitors like in Squid Game, streaming will likely have multiple winners.

Even though, we’re in 2021, it’s amazing to learn that the majority of television hours watched in the US actually remains on broadcast and cable platforms (see below).

Netflix share streaming

Sources: Nielsen, Netflix Q2 2021 shareholder letter

In that respect, Netflix – as well as competitors such as Walt Disney Co (NYSE: DIS) and Alphabet Inc’s (NASDAQ: GOOGL) YouTube – still have a lot of room to grow bigger.

Investors also tend to forget that technology companies or platforms that are from the US actually often go global given their ubiquity.

Netflix is a perfect example. That 23.53 million subscriber number for the streaming giant had evolved into 209.18 million paid memberships by 30 June 2021.

A nearly 10-fold increase in less than a decade, it speaks volumes about the attraction of content found on the Netflix platform.

Last year highlighted the advantage Netflix has in producing quality content. In 2020, Netflix produced nine out of the top 10 shows that were most Google-searched during the year.

Focus on winners long term

While the unlucky participants in Squid Game may have met an untimely demise, investors have the luxury of sticking with investments they have conviction in.

Buying Netflix stock, even at the price that it’s at today, could end up being a rewarding decision over the long term…as long as you keep in mind that investing is never meant to be a “life-or-death” decision.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.