Currently, there are only eight companies worth at least $1 trillion.
Netflix (NFLX -0.74%) deserves most of the credit for spearheading streaming video entertainment and bringing it onto the global stage, completely disrupting the traditional cable TV industry. The company’s huge success has made some shareholders very happy. The stock price has increased 54,120% over the past 20 years.
Today, Netflix is one of the most valuable companies on the planet, with a market capitalization of $324 billion. But can this streaming giant become a $1 trillion stock by 2030? Here’s what investors need to know.
grow older
Since Netflix first launched its streaming service in 2007, it has started to see tremendous growth. Simply because it offered consumers a better user experience compared to expensive bundled cable packages. The business also faced little direct competition as other media companies were slow to introduce their own streaming services.
Between 2010 and 2020, the company typically posted annual revenue growth of 25% or more. These days, Netflix is still growing at a healthy pace, but at a slower pace than before. Revenue for the third quarter (ended September 30) increased 15% year-over-year, driven by approximately 5.1 million net new customers.
However, there is no doubt that this is a more mature company these days. It can be difficult to convince late adopters to cancel their cable subscriptions if they haven’t already. As a result, investors should be reasonable and not expect the phenomenal growth of the past to be repeated in the future. Management believes sales will increase 15% this year and 12% in 2025 (at the midpoint). And in 2026, analyst consensus forecasts are for sales to increase by more than 10%.
Netflix continues to capture more market opportunities for the company to address, essentially targeting every household in the world with a broadband Internet connection. However, as the business grows, the growth rate is likely to inevitably decline. And this could prevent it from reaching $1 trillion in market capitalization at least within this decade.
market sentiment
The stock price has fallen significantly, gaining 252% in the past 30 months. This valuation is not as convincing as it would be in 2022. The price-to-earnings ratio is currently 42.9 times.
Rising valuations are a major headwind to achieving high investment returns. It’s clear that the market views Netflix very favorably, as evidenced by the significant rise in Netflix’s stock price since spring 2022. However, as I explained above, growth will inevitably slow, so I believe valuation multiples will decline over time.
Therefore, I think it is reasonable to expect investment returns to slow further going forward.
temper expectations
Over the past decade, Netflix’s market capitalization has grown at an annual rate of 30%, an incredible expansion. For Netflix’s market capitalization to reach $1 trillion in monopoly market value by 2030, it would need to rise at an average annual rate of about 21% over the next six years. This would likely be a much larger gain than the broader Nasdaq Composite Index.
Based on the company’s track record, such expansion is not impossible. But I take a more sober view. I believe Netflix’s best days are behind it. This is not surprising for a business that has experienced such impressive growth. It is now an established company.
This is not to say that Netflix, a group that currently includes just eight companies, will never reach a valuation of $1 trillion. In fact, I see it happening within the next 15 years. But I don’t think the company will reach that level by 2030.
Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has a position in and recommends Netflix. The Motley Fool has a disclosure policy.
