There are only eight businesses that are worth at least $1 trillion today.
Netflix (NFLX -0.74%) deserves the most credit for spearheading streaming video entertainment, bringing it to the global stage, and totally disrupting the traditional cable TV industry. The company’s monster success has resulted in some seriously happy shareholders. The stock has soared 54,120% in the past two decades.
Netflix today is one of the most valuable businesses on Earth, carrying a market cap of $324 billion. But can this leading streaming enterprise become a trillion-dollar stock by 2030? Here’s what investors need to know.
Getting older
After Netflix first launched its streaming service in 2007, it started to see phenomenal growth simply because it provided consumers with a superior user experience compared to the expensive bundle cable packages. The business also faced minimal direct competition, as other media companies were late in introducing their own streaming services.
Between 2010 and 2020, it was common for the business to post greater than 25% annual sales gains. These days, Netflix is still growing at a healthy pace, but at a slower rate than in the past. Revenue jumped 15%in the third quarter (ended Sept. 30) on a year-over-year basis, driven by the addition of almost 5.1 million net new customers.
There’s no doubt that this is a more mature enterprise these days, though. It will be harder to convince late streaming adopters to cancel their cable subscriptions if they haven’t already. As a result, investors should be reasonable and not expect its past monster growth to repeat moving forward. Management believes sales will rise 15% this year before increasing 12% (at the midpoint) in 2025. And in 2026, consensus analyst estimates call for revenue to grow by over 10%.
Netflix continues capturing more of its total addressable market opportunity, which is essentially every household in the world that has a broadband internet connection. But it’s likely that as the business gets bigger, its growth will inevitably come down. And this could get in the way of reaching a trillion-dollar market cap, at least within the current decade.
Market sentiment
Shares have been on an absolute tear, soaring 252% in the last 30 months. The valuation isn’t as compelling as it was in 2022. The stock now trades at a price-to-earnings ratio of 42.9.
An elevated valuation is a major headwind to achieving strong investment returns. Clearly, the market views Netflix in a very favorable light, as evidenced by the stock’s monumental rise since the spring of 2022. But as growth inevitably slows, which I discussed above, I’d bet that the valuation multiple comes down over time.
Consequently, I think it’s reasonable to expect more muted investment returns going forward.
Temper expectations
In the past decade, Netflix’s market cap has climbed at an annualized pace of 30%, an unbelievable expansion. In order for Netflix’s market cap to hit the exclusive $1 trillion market by 2030, it would need to rise at a compound annual rate of about 21% over the next six years. That would be a tremendous gain that would probably outpace the broader Nasdaq Composite Index.
Based on the company’s historical performance, this possible expansion would not be out of the question. However, I take a more tempered view. I believe Netflix’s best days are behind it, which isn’t surprising for a business that has had the remarkable ascent that this one has. It is now an established enterprise.
This isn’t to say that Netflix won’t ever reach a $1 trillion valuation, a group that includes just eight businesses today. In fact, I can see it happening within the next 15 years. But I wouldn’t bet my hard-earned savings that the company will get to that mark by 2030.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
