Netflix’s Path to the Trillion-Dollar Club: A Strong Contender Beyond Tech Giants
Only a handful of companies have reached a valuation of $1 trillion. Currently, seven public companies hold this distinguished title:
- Apple: $3.5 trillion
- Nvidia: $3.4 trillion
- Microsoft: $3.2 trillion
- Alphabet: $2 trillion
- Amazon: $1.9 trillion
- Meta Platforms: $1.4 trillion
- Taiwan Semiconductor Manufacturing: $1 trillion
Aside from these, electric vehicle manufacturer Tesla and Warren Buffett’s investment powerhouse, Berkshire Hathaway, have both briefly breached this trillion-dollar mark in the past.
With the exception of Berkshire, all the companies surpassing the trillion-dollar valuation are notable technology firms involved in the booming artificial intelligence (AI) sector. While several companies might emerge as future trillion-dollar stocks, I believe Netflix (NASDAQ: NFLX) has the most potential to break this barrier soon, despite not being an AI-focused entity.
Dominating the Streaming Market
The streaming space is bustling as traditional cable cutters seek new options. In this crowded environment, networks are pushed to develop original content for their own streaming services.
While this strategy offers viewers more choices, the abundance of options can be overwhelming. Many TV fans have likely tried newer services like Peacock and Paramount+. However, it’s unclear how long these new subscribers stick around, and I suspect it’s not very long.
A study by EY shows that on average, streaming households subscribe to five services. Notably, two-thirds of these subscribers canceled at least one service in the past year, with 37% admitting they weren’t utilizing some of their subscriptions.
Despite fierce competition, one platform shines: Netflix stands out with 283 million global subscribers, far outpacing rivals.
The company’s growth is powered by a vast library, featuring both original content and popular shows and movies. Upcoming opportunities could further propel Netflix’s growth.
Image source: Getty Images.
Emerging Opportunities for Growth
In the third quarter, Netflix gained 5.1 million new subscribers, exceeding Wall Street’s expectations, largely due to the introduction of its advertising tier.
Netflix launched a lower-cost subscription option that includes ads. This plan saw a 35% year-over-year growth during the third quarter.
Although this growth is promising, management indicated that advertising might not heavily influence overall revenue growth by 2025. With Netflix’s revenue already climbing 15% year-over-year, the future potential from ads appears bright.
Additionally, Netflix is venturing into new depths with its immersive experience called Netflix House. While I don’t expect significant direct revenue from Netflix House, it could enhance brand loyalty, similar to how Disney World attracts fans. Netflix seems to be transforming into a comprehensive entertainment company that connects with its audience beyond mere streaming.
Realizing the $1 Trillion Valuation
For 2024, Netflix’s management projects total revenue of approximately $38.8 billion. Furthermore, they forecast that 2025 revenue could reach between $43 billion to $44 billion, an 11% increase from the previous year.
If Netflix maintains an 11% annual growth rate over the next ten years, revenues could soar to $96.2 billion by 2033. Using the current price-to-sales (P/S) ratio of 8.8, this would imply a market cap of about $847 billion by the end of my projection period.
Although this figure falls short of a trillion-dollar valuation, long-term revenue estimates are tricky due to uncertainties surrounding advertising strategies and Netflix House’s potential impact.
Netflix House could help retain subscribers while attracting new ones. Thus, I believe its true value lies in enhancing customer lifetime value. Meanwhile, the advertising tier should encourage viewers to remain with Netflix due to its cost-effectiveness compared to other platforms.
Consequently, I anticipate Netflix will experience rising revenues and profits in the upcoming years. If Netflix improves its margins and subscriber economics, a significant increase in valuation multiples may follow.
Based on these factors, I consider Netflix a strong candidate to join the trillion-dollar ranks in the coming years.
Is Now the Right Time to Invest in Netflix?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Netflix, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
