Two years ago, Netflix was all but written off for dead.
Netflix decided to split its DVD rentals and online streaming offerings in July 2011, effectively hiking the price by 60% for those accustomed to getting both. Two months later, Netflix doubled down on unpopular moves by announcing plans to split its DVD-by-mail service into a separate business that would be called Qwikster.
Customers took to social media to protest. The stock lost two-thirds of its value in a three-month period. Reed Hastings, the company's CEO, was declared the worst chief executive of the year by the New York Times and TheStreet.
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It was an abrupt and shocking turnaround for a company that had long been viewed as one of the savviest in the tech industry, and doubts about the company lingered long after it killed off Qwikster, apologized and started to grow its subscriber base again.
It arguably wasn't until the beginning of this year — Jan. 23, to be exact — when Netflix shattered many of those doubts. On that day, Netflix reported its fourth-quarter earnings results, which revealed that it had added more than 2 million subscribers from the previous quarter and turned a $7 million profit, both of which beat analyst expectations. That earnings report caused the stock to jump from just under $100 to nearly $140 in a 24-hour period and kickstarted a year full of glowing headlines for the streaming movie service.

"The goal is to become HBO faster than HBO can become us."
Hastings made this statement during an interview with GQ published in the beginning of the year. At the time, the comment sounded ambitious at best and unrealistic at worst, but Netflix has proved itself more than capable of competing with HBO at its own game.
Netflix released its first original series, Lillyhammer, in 2012, but it was the release of House of Cards in February of this year that established it as a force among TV networks. The show quickly became the most-watched show on Netflix and was credited with bringing new subscribers to the service. The program went on to win an Emmy, making it the first web-only series to win the award.
That alone would have been impressive, but Netflix gained tremendous interest in several other original series this year as well, including Orange Is the New Black and the return of Arrested Development, which users binge-watched in droves.
"Making real content is difficult. You can just look at how the Hollywood studios and TV studios have done over the years," said Brian Blau, an analyst with Gartner. He expects Netflix will have hits and misses in the future as well, "but they certainly got off to a good start with the content they've made."
Netflix may still have some way to go to offer the range of original shows that HBO has, but this year it showed that it's far from impossible. Until then, Netflix can take pride in another accomplishment this year: It topped 40 million customers in October, meaning it has more subscribers than HBO.
While Netflix looks to take on HBO, businesses like Amazon and Hulu continue to take aim at Netflix, but with minimal results.
Hulu has tried to push into original content as well, but with less critical acclaim than Netflix has enjoyed. More fundamentally, Hulu has been hamstrung by management changes and perennial rumors that it will be sold.
Amazon, for its part, has been even more ambitious, inking content licensing agreements this year with the Food Network, A&E and a renewed agreement with Viacom to expand its selection of TV shows and movies on Amazon Prime, its premium service. Amazon has also dabbled in original content including Zombieland, which was killed after the pilot, and Alpha House, which has received less than stellar reviews.

Hulu revealed this week that it now has 5 million paid subscribers, or about one-eighth the number that Netflix had as of October. Amazon doesn't break out the number of paying customers for Prime, which includes other services in addition to video streaming. But data from Sandvine (above), a research firm that tracks broadband activity, suggests that Netflix streaming activity is significantly larger than either of these competitors.
"[Netflix] takes all of the money that they have from the greater subscriber base and plows it into more content, and in doing so they make it terribly difficult for anyone to get into the market to displace them," said Tony Wible, an analyst with Janney Capital Markets. "The longer it takes for competition to catch up to Netflix, the better they are."
The growth in subscribers and profits combined with the early success of its original content has helped Netflix stock more than triple in the year to date, hitting as high as $389 a share.
Netflix was the top-performing Internet stock in the first half of the year and continues to perform significantly better than most, as you can see in the chart below comparing it to businesses like Amazon, Google and Apple.

NFLX data by YCharts
Wall Street's optimism for Netflix reached such a fever pitch this year that Hastings urged investors to be a bit more cautious in an investor letter released in October. "In calendar year 2003 we were the highest performing stock on Nasdaq," he wrote at the time. "We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003."
The stock dipped somewhat in the following days, but has more than rebounded since and is up more than 300% in the year to date, based on the closing price Wednesday.
Much of the success that Netflix experienced this year was directly attributable to the unpopular decision it made in mid-2011 to split up its streaming and DVD businesses and start investing more in the former. It invested in more streaming content licensing deals, focused on developing better viewing experiences on the web and across mobile platforms and eventually debuted original streaming shows.
As Blau put it, a lot of dividends are paying off this year from investments made in previous years. In order for Netflix to continue building on its momentum, the company will need to continue making those types of investments — and occasionally some risky bets.
Both Blau and Wible expect that Netflix will focus a great deal on international growth in the coming year, acquiring new content deals and developing new original shows and sequels to successful ones, like the decision to air a new season of House of Cards. Whatever they do, though, the industry will be watching.
"They're going to be right in the center," Blau said, noting conversations he has had with cable companies and wireless providers. "All of these other companies want to partner with them and understand where they're going next."
Image: Netflix