This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Netflix has put up tremendous growth as it completely disrupted the media and entertainment industry.
- The business is much more mature these days, but management is finding ways to continue expanding.
- Investors looking to score huge returns will be discouraged by the stock's currently expensive valuation.
Netflix (NASDAQ: NFLX) has been, without a doubt, one of the best investments of the past couple of decades. Since October 2005, shares have soared 29,100% (as of Oct. 17). Had investors bought just $3,500 worth of the streaming stock at that time, they'd have $1 million today. That's a wonderful outcome.
Today, Netflix dominates the industry. It ended last year with 302 million subscribers. And the business carries a huge market cap of $510 billion. If you bought this stock today, though, could it help you become a millionaire?
Netflix still has a bright future
At its current scale, it's a reasonable assumption that Netflix won't put up the same monster growth that it did in the past. For an extended period of time, the company faced minimal direct competition in the streaming market. It provided a much better experience than traditional cable TV, which helped it expand rapidly. Consequently, members and revenue skyrocketed, as Netflix propelled the cord-cutting trend. Investors who got in early on this disruptor were clearly rewarded.
These days, the competition is fierce, as other streamers try to capture viewer attention. Netflix is no longer the only game in town. Major media and entertainment companies have created rival streaming services that are finding different levels of success. This just means that Netflix must continue operating at a high level to stay ahead of the pack.
However, this doesn't necessarily mean the future isn't bright. In fact, Netflix should still have lots of success going forward. It's still growing at a solid clip. Through the first six months of 2025, sales were up 14% year over year. While the U.S. and Canada reach maturity, Netflix can lean on international markets to drive more growth, particularly in the Asia-Pacific region and Latin America. The company's ability to create localized content that has global appeal certainly plays to its advantage.
It's also encouraging to see the leadership team continue to evolve the corporate strategy. What was unthinkable even half a decade ago is now the new normal. For example, Netflix has cracked down on password sharing, extracting more value from its viewers in the process.
What's more, the business now offers an ad-supported subscription tier. It's all about giving consumers choice. This option can bring in price-sensitive members, which can expand Netflix's total addressable market. So far, this has been a huge success, with ad revenue expected to double in 2025.
Netflix has also gotten into live events, something that co-founder and former CEO Reed Hastings said before it wouldn't do. People can watch NFL games on Christmas Day, as well as boxing and wrestling matches.
The leadership team remains optimistic about the opportunity ahead. Co-CEO Greg Peters said that there are "hundreds of millions" of more people to still sign up. This positive outlook means Netflix will be generating more revenue and more free cash flow far into the future.
What is the stock's true potential?
Netflix is clearly a great business. And its dominance of the streaming landscape isn't going to change anytime soon. This means the company should be on every investor's watch list.
The first question to consider is whether or not this stock is a smart buy today. Netflix shares trade at a price-to-earnings ratio of 51. This is an expensive valuation, to be sure. The bulls will argue that Netflix is deserving of a high P/E multiple simply because of how successful it has been from a fundamental perspective.
But I view the stock as being priced to perfection, with zero margin of safety for prospective investors. Therefore, I don't think Netflix is a smart buying opportunity right now. And given the stage of its life cycle that it's in, I have confidence that it isn't a millionaire-maker going forward.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
