Jeremy Bowman

Netflix (NFLX) is one of the best-performing stocks of the 21st century, and it’s been one of the biggest surprises over the last three years.

The streaming giant was left for dead in 2022 after it reported two straight quarters of declining subscriber growth in the aftermath of the pandemic. Since then, the company has cracked down on password sharing, launched an advertising tier, and begun embracing live sports, a genre it traditionally avoided.

As a result, the company has returned to strong growth on the top and bottom lines, and the stock has soared over the last three years, reaching a market cap of more than $400 billion. Now, management thinks it has a path to getting to a trillion-dollar valuation by 2030, according to a report from The Wall Street Journal. Doing so would mean the stock would jump 139% over the next five years, assuming that its share count holds flat.

Can Netflix get there? Let’s take a look at its prospects.

The path to $1 trillion

Netflix has put a lot of daylight between itself and the rest of the industry, especially as legacy media companies like Disney have struggled in streaming thus far.

The company added more than 40 million subscribers last year to bring its total to more than 300 million. Management has set a target of 410 million by the end of 2030, meaning it would grow at a compound annual growth rate of about 5% over six years, or add 18 million subscribers a year. That goal seems very achievable for Netflix, which has historically grown its subscriber base by about 25 million to 30 million a year.

The service has become more mature in key markets like North America, where it has 90 million subscribers, or close to 75% of all broadband households. So some slowdown is expected.

The company has attracted new advertisers by lowering its ad rates. It said that 43% of subscribers joined through the ad tier in February. That’s key, because the ceiling on ad revenue is higher than for subscriptions. Netflix earns more revenue as ad-based users watch more programming. That helps explain why the company is no longer reporting subscriber numbers every quarter, though presumably it will give updates when it reaches them.

Looking ahead to 2030, Netflix is targeting $9 billion in ad revenue, up from an estimated $2 billion this year, as part of its plan to double annual revenue to $80 billion. It also aims to grow operating income from $10.4 billion last year to $30 billion.

If Netflix does that, a $1 trillion market cap should be an achievable goal.

Is Netflix a buy?

Tripling operating income in six years won’t be automatic, but Netflix has a number of tailwinds that can help it get there. First, its advertising business has reached scale, and the company is expected to switch away from Microsoft as its ad tech partner and use its own proprietary system. Reaching scale means that future growth will be more profitable, as the incremental costs to serve those ads will fall. The same is true for the content-focused side of the business. Netflix can grow subscriptions without having to spend as much on adding content, especially as it branches into new categories like live sports, which it plans to accelerate.

The streaming stock currently trades at a price-to-earnings ratio of 49, meaning that significant growth is already priced in. This could present a challenge to the company’s goal of achieving a $1 trillion market cap in five years.

However, Netflix doesn’t have to get there to be a good buy or to outperform the S&P 500. In fact, the company seems well-positioned for the current trade war upheaval, as it offers a service that can’t be tariffed. Its product also arguably represents a way to save money versus going out to a movie or live entertainment, meaning it’s a product people would keep or even use more of in a recession, though it is a discretionary item. As of April 14, Netflix stock is higher than it was on April 2 (when President Donald Trump announced global tariffs). That’s a sign of that resilience.

Though the stock is pricey, Netflix’s business is thriving, and it’s well-positioned to endure the chaos and even a recession from the trade war.

Jeremy Bowman has positions in Netflix and Walt Disney. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Censational Market.

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