Shares of streaming giant Netflix (NASDAQ: NFLX) have been on an absolute tear in the past decade. Valued at a market cap of $250 billion, Netflix stock has returned over 3,000% to shareholders in the past 15 years, outpacing the major indices such as the S&P 500 and Nasdaq Composite by a wide margin.
If you zoom out further, you will see that Netflix stock has risen by an astonishing 46,000% since its initial public offering in 2002, turning an investment of $2,500 into more than $1 million today. Generally, if a stock gains over 1,000%, it is considered to be a millionaire-maker. So, let’s see if Netflix stock can help you become a millionaire in the upcoming decade.
Source: Getty Images
Netflix is an industry leader
Netflix entered the online streaming segment back in 2007 and now has a presence in 190 countries. Over the years, the company has experienced strong revenue and subscriber growth, turning it into a media heavyweight you can’t ignore.
Netflix ended the first quarter (Q1) of 2024 with 270 million subscribers and has generated $35 billion in revenue in the last 12 months. Since the end of 2023, Netflix has more than doubled its sales and grown its subscriber count by 94%. Additionally, it has entered new categories, such as video games, and diversified the revenue base by including an ad-based subscription tier.
Netflix continues to invest heavily in creating original content, allowing it to enter new markets and maintain its leadership position. Its huge scale and vast content library now enable the company to report consistent profits, as it ended 2023 with an operating margin of 21%. Netflix’s free cash flow in 2022 and 2023 totalled $8.5 billion, and it is on track to report a cash flow of $6 billion in 2024, providing it with the flexibility to reinvest in organic growth or target share buybacks.
Moreover, Netflix’s early mover advantage has allowed it to compete with much larger players such as Apple TV+, Disney+, and Amazon Prime Video.
Is Netflix stock still undervalued?
Despite a challenging macro environment, Netflix increased revenue by 14.8% year over year in Q1 of 2023 to $9.4 billion, higher than estimates of 13.2%. The number of paid subscribers also rose by 16% despite worries that Netflix’s password-sharing crackdown would lead to a slowdown in subscription numbers.
In fact, Netflix added 9.33 million paid members in Q1, up from just 1.75 million in the year-ago period. A focus on cost optimization allowed the tech giant to grow earnings by 83.3% to $5.28 per share.
Netflix’s revenue is forecast to increase by 14.8% to $38.7 billion in 2024 and by 12.3% to $43.45 billion in 2025. Its adjusted earnings are forecast to expand by 28% annually in the next five years. So, priced at 31 times forward earnings, NFLX stock is quite cheap and trades at a discount of 11.4% to consensus price target estimates.
The Foolish takeaway
Netflix roughly accounts for 8.1% of television viewing time in the U.S., while the streaming industry cumulatively accounts for less than 40% of total viewing time. This suggests that a significant portion of the population is still hooked on cable TV, providing Netflix with room to gain further traction in the U.S. and other emerging markets.
Netflix stock is unlikely to surge 1,000% from its current valuation but is positioned to outpace the broader markets in 2024 and beyond.
