How I Bet on Netflix Stock and Sent Myself on a Mardi Gras Spring Break
In November 2012, my freshman year, I bought a few shares of Netflix (NFLX) stock for about $77 a piece. When I say “a few” here I mean an amount so small that someone like Gordon Gekko or Jordan Belfort (both represented on Netflix at the time of this writing) would probably laugh and then spit in my mouth. 6 shares. This is not even comparable to your average purchase by say, a middle-class Midwestern couple acting on a tip from Uncle Whoever. It’s infinitesimal. But again, this was college. My 6 share investment was like a block of ramen noodles compared to actual food. It was also evocative of college in that it was, pragmatically, a bad idea. Refilling your solo cup with the off-brand liquor closest to you in the midst of a stack cup game because the keg line is too long is a bad idea for obvious reasons. Stock picking, which is what I did with Netflix, is a bad idea because:
1) There are people in the market who have way more information (Gekko and Belfort) and tons who have the same amount, so finding an opportunity to Buy Low & Sell High is unlikely.
2) Investing in a mutual fund, where that $77x6 would be spread fractionally across thousands of stocks, possibly even different stocks every day selected by an algorithm, is much more sensible.
Basically, stock picking by civilians is not recommended. Fuck it though, college right? Absolutely right. By the time I was a budding sophomore, in the process of losing my freshman fifteen, the Netflix stock price had multiplied by almost six. That means my original investment (77 x 6) was now worth (77 x 6 x 6). I had made over $2,000 in the stock market at a time when my primary bank account typically held only a double digit balance of cash. Oh how the ramen would flow to me like a noodle king.
So how did I do it? It’s not that I had a great feel for the P/E ratio, nor did I particularly think about whether Netflix would be able to grow profits if revenue happened to plateau. I certainly did not consider deeply the implications of the division between streaming and DVD service. The truth is I just liked the company — mindset of a marketing major. We believe that brand is everything. It is more telling than those hard numbers used by professional stock pickers while at the same time is impossible to accurately measure. In this case, it was enough.
I knew of Netflix not because some Kiplinger’s article told me to “Watch Out” for it, but because I love movies. In high school, my family subscribed to the highest level of Netflix DVD service — three DVDs at a time. For those of you who never used the DVD service, it did not matter how long you held on to them or in what order you returned them — you just always had your allotted amount of DVDs. So for example, if I watched Clerks and Mallrats over the weekend I could mail them back and have both Clerks II and Chasing Amy on their way to my house immediately, even if that whole time Doctor Zhivago had been sitting around waiting for me to have the patience to enjoy it. Sometimes though, Netflix gave you one extra. No email announcement, no NetBux adding up or anything like that, they just plopped one more in your mailbox. The only explanation was a little “+” in your queue next to Dogma or whatever would have been next. To me, this was absolutely brilliant. It was Netflix presenting itself to the consumer as a friend; like that friend who offers you one of their buffalo wings from the adjacent couch, just because they feel like you might want one. The brand building here happened not in any paid advertising space, but within the pleasantly surprised mind of a person coming across that extra red envelope at the end of a long day — their excitement and pleasure being much accredit to the ingenious use here of B.F. Skinner’s variable reward strategy by Netflix.
Of course, what they tell you in marketing class these days is that branding must involve two-way communication. Consumers don’t’ just want be told that Coca-Cola makes them happy; they want to share a hug with Coca-Cola and then get personally retweeted. Or something like that. Anyway, it happened for Netflix. I knew when I stumbled upon an online image gallery of Netflix envelopes that had been uniquely and beautifully embroidered with fan-art. People had used the iconic Netflix red as a convenient background for Spider-Man or affected the logo letters to drip with blood (probably after session of Saw flicks). They put their time and creativity into a piece of branding and then sent it away in the mail feeling that a real person would be on the other end to enjoy it. A very strong relationship was clearly in place.
This is all the insight I needed to buy, sell, and then send myself to the 2013 Mardi Gras Festival in New Orleans. I drank sugary alcoholic beverages for 48 hours straight, threw a Po Boy sandwich at a protester of some sort, sat in the back of a strip club and drank as if it was just a regular bar, tasted alligator, dropped a glass bottle in the middle of a pretty intimate jazz performance, and eventually found myself at an upscale house party meeting the uncles and the aunts of whoever I was supposed to have met to be at the party in the first place.
It’s now 2017 and believe me, I haven’t retired to a life of full-time trading and travel just yet. The stock market offers guarantees to no one. A company with a cultish following may very well have a poor performing stock and a trader with a legitimate recognition of quality in any or all metrics of a business may lose his money in a month. But that does not mean I got lucky, not exactly. I recognized and took advantage of something that many investors don’t because it is difficult to evaluate — strong marketing and branding, crucial to long-term success. I was lucky in that the other pieces were there. Early this year Netflix’s stock price hit an all-time high. And are people still connecting with the brand? See: Netflix and Chill.
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