Netflix (NASDAQ: NFLX) has fashioned many an overnight tycoon since its flamboyant entrance to the public market in 2002. An investment of $10,000 at its IPO would have bloomed into a staggering $5.4 million today. Yet, the path has been treacherous. Netflix’s stock has weathered tumultuous declines over the last two decades as it has tirelessly metamorphosed its business model, doggedly refuting the cynics at every turn.
Some may argue that Netflix has reached its zenith. It already reigns supreme as the world’s premier premium streaming video platform, boasting an impressive 269.6 million paid subscribers and flaunting a majestic market capitalization of $260 billion. But could this streaming video titan yet birth more millionaire-making marvels from a fresh $10,000 investment today?
Image source: Getty Images.
Lingering and Leaping Growth
It was in April 2022 that Netflix’s stock nosedived to its lowest ebb in over four years. This descent was sparked by its first sequential dip in subscribers in more than a decade during the first quarter of 2022.
The decline was ascribed to the Russo-Ukrainian conflict and rampant password sharing among users. Executives acknowledged the intense competition Netflix faced and announced plans for a cheaper ad-supported tier to allure fresh users. These strategies hinted that Netflix might be approaching saturation, and that it needed to escalate its investments in fresh content to ensnare more viewers. The company encountered yet another sequential subscriber loss in the second quarter of 2022.
Nevertheless, Netflix rebounded in the third quarter of 2022 with sequential subscriber growth, while its year-over-year subscriber increase accelerated over the past year. Revenue growth in double digits was also reignited in the last 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 attributes this accelerating growth to the expansion of its new paid-sharing plans, price upgrades for existing subscribers, favorable currency exchange rates, and robust viewership of hit series like Griselda, 3 Body Problem, and Avatar: The Last Airbender. Ad-supported memberships also surged nearly 70% sequentially in the third and fourth quarters of 2023, followed by an additional 65% uptick in the first quarter of 2024.
In 2024, Netflix anticipates revenue to climb between 13% and 15%, with its operating margin expanding from 21% to 25%. These burgeoning margins underscore its distinction as the solitary major streaming service capable of delivering steadfast profits. Walt Disney, which served almost 150 million paid Disney+ subscribers in its last quarter, envisions that its direct-to-consumer streaming wing could finally tip into profitability by the fourth quarter of fiscal 2024 (ending this September).
The Bounds of Expansion
Netflix is yet in ascension, but it jolted investors by announcing its intention to cease disclosing paid subscriber and average revenue per member (ARM) metrics by 2025. This decision is purportedly in response to the broadening of pricing tiers and the introduction of fresh revenue streams such as advertising and paid sharing plans. However, the removal of these pivotal metrics may render it notably challenging to assess Netflix’s growth trajectory while concealing the sporadic surge of its global audience.
For now, analysts anticipate Netflix’s revenue to burgeon at a compound annual growth rate (CAGR) of 12%, with its earnings per share (EPS) escalating at a CAGR of 28%. Priced at $580, Netflix’s stock appears far from undervalued at 34 times this year’s earnings. This valuation persists as that of a high-growth tech stock, rather than a more sedate media stock.
Let’s hypothesize that Netflix hits those targets and boosts its EPS at a commendable CAGR of 20% by 2034. If that scenario unfolds and Netflix maintains a trading multiple of roughly 30 times earnings, its price tag might hover around $3,300 per share in a decade.
While signifying a near-sextupling surge from its current valuation, this would pale in comparison to metamorphosing a $10,000 investment into $1 million. Netflix remains a steadfast hedge in the perpetual expansion of the streaming media domain. Yet, investors shouldn’t anticipate a reincarnation of its millionaire-minting feats witnessed over the last two eventful decades.
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Leo Sun has interests in Walt Disney. The Motley Fool retains stakes in and approves of Netflix and Walt Disney. The Motley Fool maintains a disclosure policy.
