Having a great product to sell isn’t enough to have a business that’ll generate a great return for shareholders for many years to come. You also must have stellar management with a killer instinct for allocating capital. Netflix Inc. (NFLX) is a great example, advises Sam Ro, editor of Tker.co.
Not only does management have to figure out how to sell the company’s core product for growth and profitability, but they also have to be able to read the tea leaves and recognize when the tides of business are turning.
Maybe the market for the product is saturated. Maybe the product is becoming obsolete. Maybe customer preferences are shifting with technological developments. Maybe there are other significant opportunities to pursue, and the company has both the finances and expertise to capitalize on them.
Most companies continually make subtle adjustments that often go largely unnoticed. Some completely overhaul their business.
Take Berkshire Hathaway Inc. (BRK.A), which was a textile company when Warren Buffett took it over in 1965. Not long after, Berkshire became an insurance company that also sold candy. Today, it’s a diversified conglomerate selling everything from energy to airplane parts to underwear. And it has a massive stock portfolio generating market-beating returns.
Another famous example of a company that’s undergone a total transformation is Netflix. The company defined change when it introduced DVD rentals by mail while many consumers were still walking the aisles of brick-and-mortar video stores.
While it dominated the mail-based rental business, management quickly shifted its efforts and aggressively invested in streaming services and original content. In 2023, Netflix mailed its last DVD. The stock currently trades at an all-time high, with the company valued at over $500 billion.
