Netflix (NASDAQ:NFLX) Since going public in 2002, it has created many millionaires. His $10,000 investment in the initial public offering (IPO) is now worth a whopping $5.4 million. But it hasn’t been a smooth road. Netflix’s stock price has endured some steep declines over the past two decades as it has repeatedly pivoted its business model, but it has consistently proven the bears wrong.
Some investors may argue that Netflix has run out of room to grow. After all, the company already owns the world’s top premium streaming video platform with 269.6 million paying subscribers and a market capitalization of $260 billion. But could this streaming video giant make even more millionaire profits by investing his $10,000 in a new company today?
Netflix is still growing
Fast forward to April 2022, and Netflix stock has fallen to its lowest point in more than four years. The decline was triggered by the first consecutive subscriber decline in more than a decade in the first quarter of 2022.
The company attributed some of the decline to the Russia-Ukraine war and users sharing passwords, but executives also acknowledged the company faces stiff competition and is looking to attract new users. The company said it would roll out a cheaper ad-supported tier. These strategies suggested that Netflix was running out of room to grow and needed to increase spending on fresh content to lock in more viewers. In the second quarter of 2022, the number of subscribers again suffered a continuous decline.
However, Netflix gradually gained subscribers in the third quarter of 2022, and year-over-year growth in subscribers accelerated over the past year. It has also started posting 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 |
|
Increase in number of subscribers (YoY) |
4.9% |
8% |
10.8% |
12.8% |
16% |
|
Revenue (billion) |
$8.16 |
$8.19 |
$8.54 |
$8.83 |
$9.37 |
|
Revenue growth rate (YoY) |
3.7% |
2.7% |
7.8% |
12.5% |
14.8% |
Data source: Netflix. YOY = year-on-year change.
Netflix attributes its accelerated growth to the expansion of new paid sharing plans, price hikes for existing subscribers, currency tailwinds, and solid viewership for hit shows such as: There is. Griselda, 3 Physical problemsand Avatar: The Last Airbender. Ad-supported membership numbers also increased by nearly 70% in the third and fourth quarters of 2023, and another 65% in the first quarter of 2024.
Netflix expects revenue to grow 13% to 15% in 2024 and operating margins to expand from 21% to 25%. These margin expansions have further strengthened its reputation as the only major streaming platform capable of generating consistent profits. Walt Disneyserved approximately 150 million paid Disney+ subscribers in the last quarter, but expects its direct-to-consumer (DTC) streaming division to finalize by the fourth quarter of fiscal 2024 (ending in September of this year). We believe that we will be able to return to profitability.
But how big will it get?
Netflix is still expanding, but it recently surprised investors by announcing that it plans to stop disclosing paid memberships and average revenue per member (ARM) metrics in 2025. The company claims these changes reflect the expansion of its price range and the introduction of new revenue streams, including: Advertising and paid sharing plans. But if these key metrics are removed, it could become much more difficult to measure Netflix’s growth while masking the larger expansion of its global audience.
Analysts currently expect Netflix’s revenue to expand at a compound annual growth rate (CAGR) of 12% and earnings per share (EPS) to grow at a CAGR of 28%. However, at $580, Netflix’s stock price is 34 times this year’s earnings, so it doesn’t seem particularly cheap. That’s because it’s still valued as a high-growth tech stock, rather than a slow-growing media stock.
Let’s assume that Netflix achieves these goals and grows EPS at a respectable CAGR of 20% through 2034. If that happens, and Netflix still trades at about 30 times earnings, Netflix stock could trade at about $3,300 per share in 10 years.
That’s nearly a 6x return on current prices, but far short of turning a $10,000 investment into $1 million. While Netflix remains a solid contributor to the streaming media market’s long-term growth, investors shouldn’t expect the company to repeat the billionaire gains of the past two decades.
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Leo Sun has a position at Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
Can Netflix stock help you become a millionaire? Originally published by The Motley Fool
