Can Netflix Reach a Trillion-Dollar Valuation by 2030?
One Stock that has managed to withstand the recent downturn in the Nasdaq is streaming and entertainment leader Netflix (NASDAQ: NFLX). An ambitious goal set by management aims for a trillion-dollar valuation by 2030, a target currently igniting interest in Netflix shares.
In a recent article from The Wall Street Journal, Netflix’s leadership detailed their strategies for boosting subscriber growth and expanding their advertising business within the next five years. This article will analyze how Netflix can meet these objectives and evaluate the underlying financial forecasts to determine the plausibility of such a valuation.
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The Evolution of Netflix: From Streaming Service to Entertainment Empire
Not long ago, Netflix primarily acted as a digital library of licensed television shows and movies. While it continues to feature popular titles from various studios, the company has invested heavily in original content over the last decade to distinguish itself from traditional media. This investment has yielded significant results, with hit series like Stranger Things, Wednesday, and Squid Game successfully attracting many subscribers.
In light of its original content success, Netflix is following in the footsteps of Walt Disney by introducing immersive experiences. While it may not match the allure of Disney World, Netflix plans to create Netflix House, featuring replicas of sets and scenes from popular shows, allowing fans a unique connection to their favorite series.
Additionally, Netflix has expanded its live sports content. Recent engagements include high-profile events like a boxing match featuring YouTube star Jake Paul opposite boxing legend Mike Tyson, as well as live NFL broadcasts on Christmas Day.
Image source: Getty Images.
Analyzing the Math Behind the Trillion-Dollar Valuation
While Netflix’s growth strategy seems solid, it raises questions about the financial projections involved in their five-year forecast.
According to Netflix’s five-year plan, revenue is expected to reach around $80 billion while achieving an operating income of approximately $30 billion by 2030. This projection assumes the company will double its revenue from the prior year and increase operating income nearly threefold.
The combination of original programming and new live sports offerings should help maintain subscriber interest. Meanwhile, the company is enhancing its advertising capabilities, allowing advertisers access to a vast customer base. This diversification presents Netflix a significant opportunity for revenue growth and improved profit margins.
This raises the question: how feasible is a $1 trillion valuation? To explore this, let’s evaluate two different methods of valuation analysis.
Data by YCharts.
The chart at the top illustrates Netflix’s price-to-sales (P/S) ratio over the past decade. Assuming Netflix can retain its current P/S ratio of 11 and applying it to the projected 2030 revenue of $80 billion suggests a market cap nearing $880 billion.
On the other hand, evaluating the company’s market cap in relation to its operating income, the second chart indicates that applying a current multiple of 37 to a projected $30 billion operating income could signify a future valuation of approximately $1.1 trillion.
Netflix: A Strong Buy-and-Hold Stock for the Future
The aforementioned forecasts are elementary; it is important to recognize that these valuation metrics are likely to evolve over the next five years.
Yet, one could argue that if Netflix delivers on its growth strategies, an expansion in these valuation multiples is attainable. By 2030, Netflix may emerge as a significantly different organization, with a rapidly growing advertising sector complementing its established streaming platform and entertainment initiatives.
While I personally believe Netflix has the potential to achieve a trillion-dollar valuation by the end of this decade, investors should be cautious about hyper-focusing on specific price targets for the next five years. The emphasis should be on the stock’s long-term potential, which positions Netflix as a promising buy-and-hold opportunity.
Considerations for Investing $1,000 in Netflix Now
Before deciding to purchase Stock in Netflix, take the following into account:
The Motley Fool Stock Advisor team has recently highlighted what they consider the 10 best stocks to invest in currently—Netflix was not included. The stocks on this list are anticipated to generate significant returns in the coming years.
Consider this: if you had invested $1,000 in Netflix when it first appeared on our list on December 17, 2004, your investment would now be worth $524,747!* Also, an investment of $1,000 in Nvidia on April 15, 2005, would have grown to $622,041!*
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Adam Spatacco does not hold positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
