This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Streaming powerhouse Netflix (NASDAQ: NFLX) is a $466 billion company, which means it would need to more than double to achieve a $1 trillion valuation. According to co-CEO Ted Sarandos, that's the company's internal goal. That indicates a ton of upside from today's stock price, and Sarandos noted that the goal is to achieve this valuation by 2030.
A doubling in under five years is an excellent stock performance. But is it realistic? After all, Netflix is the globe's most popular streaming service. How much more can it grow its subscription base?
Netflix needs international growth to push it across the $1 trillion valuation line
Netflix isn't just throwing out random valuation numbers that it wants to achieve. It believes it has a path to double its revenue by 2030, which would support its valuation thesis.
At the end of 2024, Netflix generated $39 billion. For its revenue to double to $78 billion by 2030, it would need to achieve a compound annual growth rate (CAGR) of 12.2%.
In Q1, Netflix grew its revenue at a 12.5% pace.
NFLX Operating Revenue (Quarterly YoY Growth) data by YCharts
While that's the slowest growth since the fourth quarter of 2023, management gave upbeat guidance for the second quarter of 2025, as it expects revenue growth to come in at 15.4%.
So even with Q1's slower growth pace, it's still above the required threshold Netflix needs to achieve to support its revenue doubling by 2030. That bodes well for the company's chances.
Two of Netflix's biggest growth markets are EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific). In the first quarter, these two segments saw their revenue rise 15% and 23% year over year. Growth in the U.S. and Canada (9%) was much slower. So, Netflix must continue to focus on the EMEA and APAC markets in order to attract enough subscribers to become a $1 trillion company.
One advancement that will help the EMEA market is Netflix's advertising platform, which it launched in this market during the first quarter. By providing potential ad buyers with vital information about its audience, Netflix can place properly targeted ads on its ad-supported tier. This makes the ads more effective, which in turn drives their price per ad up. In Q2, Netflix is launching this feature in the APAC region, so it will continue driving strong revenue growth in those locations as well.
While Netflix offers an ad-free experience (at a higher price for subscribers), advertising is driving the next wave of Netflix's growth. This makes Netflix an intriguing investment pick, as the advertising tier allows Netflix to reach more households with less disposable income.
Furthermore, Netflix can be considered recession-proof, as it is a fairly inexpensive form of entertainment. For a monthly fee that's less than the cost of dining out just once, subscribers have access to thousands of Netflix's titles. This makes Netflix a company that likely won't lose a ton of revenue during an economic downturn.
Has success already been baked into the stock price?
Netflix's stock isn't cheap by any means. While the rest of big tech is down anywhere from 20% to 30%, Netflix recently notched a new all-time high. But that comes at a cost: Netflix's stock is absurdly expensive.
NFLX PE Ratio (Forward) data by YCharts
Although the stock isn't as expensive as it was during the height of the pandemic, it wasn't as optimized for profits back then. With the stock trading for 43 times forward earnings, there are a ton of growth expectations built into the stock. You can find multiple big tech stocks trading for half of Netflix's valuation with better growth prospects that make for better buys.
Furthermore, with Netflix's low-double-digit growth rates, a low-to-mid-20s forward earnings valuation is likely more reasonable. If Netflix's valuation were cut in half, it would need to double its revenue just for the stock to stay flat.
While Netflix's projection to double its revenue by 2030 is reasonable, its projection to reach a $1 trillion valuation isn't, as it's already highly valued compared to many of its peers.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
