This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
There aren't many businesses that have rewarded shareholders as much as Netflix (NASDAQ: NFLX) has. The entertainment giant has seen its share price catapult 49,590% higher in the past two decades (as of June 19). A $2,020 investment in the company in June 2005 would be worth $1 million today, which is surely a wonderful outcome.
Netflix is now worth $520 billion, making it one of the world's most valuable businesses. If you buy this streaming stock today, could it help you become a millionaire in the future?
Growing at a double-digit pace
As a disruptor to the media industry, Netflix has achieved impressive growth historically. The company launched its streaming service in the U.S. in 2007. And by the end of 2024, it had eclipsed 300 million global subscribers. The business has a presence in more than 190 countries across the globe, highlighting its broad reach.
Netflix no longer reports its quarterly subscriber metrics. However, the business continues to grow at a double-digit pace. Revenue was up 12.5% in the firset quarter. Management expects a 15.4% year-over-year jump in the current quarter.
It's not a surprise that the U.S. and Canada are Netflix's two most mature markets. Naturally, the business might be close to reaching a saturation point in these countries. But there's still potential to penetrate less-developed international markets, particularly in Asia-Pacific and Latin America. As the middle class in these areas keeps growing while broadband internet access expands, Netflix can capture more customers.
The leadership team isn't shying away from testing new waters. For example, Netflix no longer allows accounts that share passwords. What's more, the company finally launched an ad-supported streaming option in November 2022, something management said previously that it wouldn't do. This cheaper subscription tier should drive a doubling of ad revenue in 2025, a clear indication of the strong demand and monetization of the lower-cost plan.
And more recently, we've seen Netflix cover live sports. The business has rights to show the National Football League's Christmas Day games through 2026. And it has the U.S. rights for the FIFA Women's World Cup in 2027 and 2031.
Investors should be realistic about expectations
Netflix has become a dominant enterprise. It has built up durable competitive strengths that make it hard to disrupt and that raise the chances of long-term success. Consider the Netflix brand. It's undoubtedly a leader in the media and entertainment space on a worldwide basis. Netflix is also used interchangeably as a verb, showcasing how much consumer mindshare the brand has.
Netflix generated $40 billion in trailing-12-month revenue, and as previously mentioned, it has more than 300 million members. This gives it tremendous scale, allowing the business to invest heavily in content at a pace that its competitors can't match.
Consequently, Netflix's scale has resulted in huge profits. The financial forecast calls for a 29% operating margin in 2025, with free cash flow of $8 billion planned as well.
With so many wonderful qualities, investors might be inclined to buy shares in the hopes that Netflix can one day make them millionaires. But it's best to keep expectations in check. Netflix is a mature company, so it's likely that the pace of growth will continue to slow in the years ahead. That's a reasonable expectation to have.
The valuation also doesn't help the cause. As of June 19, the stock trades at an expensive price-to-earnings ratio of about 58. To be fair, Netflix is an outstanding company, but it no longer has the massive upside it did when it was at an earlier stage of its lifecycle.
It's worth pointing out that investors shouldn't put all their hope in a single business. Building wealth in the stock market requires a diversified approach.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
