Will Netflix be worth a trillion dollars in 2030?

No doubt, Netflix (NFLX -1.51%) is one of the best performing stocks of this century. Stocks are up a ridiculous 19,320% over the past 20 years. To give context, the S&P 500 delivered a total return of 646% over the same period.

This top streaming stock has clearly been a huge winner in the past, making it one of the world’s most valuable companies, with a market cap of $275 billion. But can Netflix become a trillion-dollar company by 2030?

Changing the entertainment industry

It’s important to first zoom out and understand how Netflix got to this point. The company’s early management team realized that the Internet would revolutionize the way consumers viewed video entertainment. And they were right.

Executives positioned Netflix to capitalize on the secular streaming trend. The company first launched its service in the U.S. in 2007, at a time when traditional cable television was still the most popular way for households to get their video entertainment.

But Netflix was able to grow its subscriber base and revenue quickly by expanding its content offerings and entering new markets. And it won over consumers simply by providing a much better user experience. Gone were the days of being limited by what you could watch, when you could watch it, and how much you could watch.

A global media giant

Today, Netflix is ​​a global media giant. After adding 17.4 million net new customers in the first six months of this year, the company now has a whopping 277.7 million subscribers across 190 countries. And over the past 12 months, Netflix brought in $36.3 billion in revenue.

That scale is key to the company’s success. Netflix has such a large user and revenue base that it can spend huge amounts on content, about $17 billion this year. Not only is it difficult for rivals to spend that much, but doing so profitably is another challenge. Netflix’s first-mover advantage is hard to overstate.

This is an extremely profitable business. Netflix reported a operating margin from 21% last year, with executives forecasting a margin of 26% in 2024. That’s a huge improvement from 2019’s 13% operating margin, clearly indicating a scalable business model.

What’s more, the company generates a lot of free cash flow, worth $6.9 billion in 2023 and expected to reach $6 billion this year. The skeptics never thought this day would come. Netflix is ​​even buying back shares these days.

Do the math

As of this writing, there are only seven companies worth $1 trillion or more, most of which fall into the tech and internet sectors. Netflix shareholders certainly think the company belongs in that category. After all, it is a disruptive company that essentially helped create an entirely new industry.

Netflix currently has a market cap of $275 billion, as I mentioned earlier. To reach $1 trillion by 2030, the company’s value would need to grow by a compound annual rate of 24%. Over the past six years, the market capitalization has grown by only 9% per year.

I think it’s reasonable to expect investment returns to slow down over the next few years. That’s because Netflix won’t register the same growth as it has in the past. Furthermore, the current price-earnings ratio at 44.3 doesn’t exactly scream bargain. That’s why I don’t think this will be a trillion dollar stock by the end of the decade.

However, investors who are still optimistic about the company and are also happy with the valuation should consider buying shares and holding on for the next few years.