Netflix(NASDAQ: NFLX) has minted a lot of millionaires since its public debut in 2002. A $10,000 investment in its initial public offering (IPO) would be worth a whopping $5.4 million today. But it wasn't a smooth ride. Netflix's stock endured some steep declines over the past two decades as it repeatedly transformed its business model, yet it has consistently proved the bears wrong.
Some investors might argue that Netflix is running of room to grow. After all, it already owns the world's top premium streaming video platform with 269.6 million paid subscribers and has a market capitalization of $260 billion. But could this streaming video giant still generate more millionaire-making gains from a fresh $10,000 investment today?
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Netflix is still growing
Back in April 2022, Netflix's stock sank to its lowest levels in more than four years. That decline was triggered by its first sequential loss of subscribers in over a decade in the first quarter of 2022.
It attributed some of that decline to the Russo-Ukrainian war and users sharing their passwords, but management also admitted that the company faced stiff competition and said it would roll out a cheaper ad-supported tier to gain new users. Those strategies suggested Netflix was running out of room to grow, and that it still needed to ramp up its spending on fresh content to lock in more viewers. It suffered another sequential loss of subscribers in the second quarter of 2022.
However, Netflix gained subscribers sequentially in the third quarter of 2022, and its year-over-year growth in subscribers accelerated over the past year. It also started generating double-digit revenue growth again over the past two quarters.
Metric | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 |
|---|---|---|---|---|---|
Paid subscribers (millions) | 232.50 | 238.39 | 247.15 | 260.28 | 269.60 |
Subscriber Growth (YOY) | 4.9% | 8% | 10.8% | 12.8% | 16% |
Revenue (billions) | $8.16 | $8.19 | $8.54 | $8.83 | $9.37 |
Revenue Growth (YOY) | 3.7% | 2.7% | 7.8% | 12.5% | 14.8% |
Data source: Netflix. YOY = Year over year.
Netflix attributed its accelerating growth to the expansion of its new paid-sharing plans, price hikes for its existing subscribers, currency exchange tailwinds, and robust viewership numbers for hit shows like Griselda, 3 Body Problem, and Avatar: The Last Airbender. Its number of ad-supported memberships also grew nearly 70% sequentially in the third and fourth quarters of 2023, then rose another 65% sequentially in the first quarter of 2024.
For 2024, Netflix expects its revenue to rise between 13% and 15% and for its operating margin to expand from 21% to 25%. Those expanding margins reinforce its reputation as the only major streaming platform that can generate consistent profits. Walt Disney, which served nearly 150 million paid Disney+ subscribers in its last quarter, believes its direct-to-consumer (DTC) streaming unit can finally turn profitable by the fourth quarter of fiscal 2024 (which ends this September).
But how much larger can it grow?
Netflix is still expanding, but it recently surprised investors by saying it would stop disclosing its paid subscriber and average revenue per member (ARM) metrics in 2025. It insists those changes reflect the expansion of its pricing tiers and the introduction of new revenue streams like advertising and paid sharing plans. However, the elimination of those key metrics could make it much harder to gauge Netflix's growth while masking the lumpier expansion of its global audience.
For now, analysts expect Netflix's revenue to expand at a compound annual growth rate (CAGR) of 12% as its earnings per share (EPS) increases at a CAGR of 28%. But at $580, Netflix's stock doesn't look particularly cheap at 34 times this year's earnings. That's because it's still being valued as a higher-growth tech stock, rather than a slower-growth media stock.
Let's assume Netflix hits those targets and grows its EPS at a respectable CAGR of 20% through 2034. If that happens and Netflix still trades at about 30 times earnings, its stock might be trading at around $3,300 per share in 10 years.
That would represent a near-sixfold gain from its current price -- but it would fall woefully short of turning a $10,000 investment into $1 million. Netflix is still a solid play on the secular growth of the streaming media market, but investors shouldn't expect it to replicate its millionaire-making gains from the past two decades.
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Leo Sun has positions in Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
