Netflix and Robinhood: Strong Contenders for Long-Term Investment

The stock market has a history of providing solid returns over extended periods, often outperforming other asset classes when viewed over decades. While average market returns are attractive, investors have the potential to achieve even higher gains by selecting individual stocks that outperform broader equities.

Two notable candidates for this strategy are Netflix (NASDAQ: NFLX) and Robinhood Markets (NASDAQ: HOOD). Below, we explore why these companies could become market leaders in the long run.

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1. Netflix: A Streaming Leader

As a pioneer in the streaming industry, Netflix has maintained its leadership position, even in the face of intense competition from major tech and media players. One of its core strengths lies in its vast ecosystem, which enables the company to gather valuable data on viewer preferences, allowing for tailored content creation. Although not every production is a success, popular shows often see rapid growth through word-of-mouth.

Furthermore, Netflix’s well-established brand name has become synonymous with streaming. After facing a downturn roughly two years ago, the company recalibrated its strategy, leading to a resurgence in revenue, earnings, and free cash flow.

NFLX Revenue (Annual) data by YCharts.

Looking ahead, Netflix faces increased competition but also significant opportunities for growth. Streaming comprised only 43.8% of total television viewing time in the U.S. as of March, indicating ample room for expansion.

Netflix recently quantified a potential revenue opportunity of $650 billion, a figure it has barely scratched the surface of. Additionally, the company is venturing into live events, including sports, and will utilize generative artificial intelligence to enhance its search functionalities and streamline content production.

In essence, Netflix must focus on producing quality content to draw in and retain viewers. This existing strategy has yielded results in the past and holds promise for the next decade. The company’s goal is to achieve a compound annual growth rate (CAGR) of 12.8%, aimed at turning $1,500 into $5,000 over the next ten years.

2. Robinhood Markets: Attracting Young Investors

Robinhood has faced its fair share of scrutiny regarding risky trading practices; however, this controversy highlights an essential aspect of its appeal for younger, novice investors. The platform offers commission-free trades across various asset classes, including stocks and cryptocurrencies, all presented on a user-friendly interface.

Significant improvements in Robinhood’s financials have been observed, including its recent profitability. In the first quarter, the company reported a 50% year-over-year revenue increase to $927 million. Additionally, investment accounts grew by 11% to 27 million, with total assets climbing 70% to $221 billion. The net income per share reached $0.37, compared to $0.18 a year earlier.

Looking forward, Robinhood has several pathways for growth. Likely to remain a prominent trading platform for younger investors, the platform’s average user age is 30 years compared to 55 for its larger brokerage competitors. New initiatives such as Robinhood Legend, a day trading desktop app, should broaden its customer base.

The popularity of its subscription service, Robinhood Gold, continues to rise, providing further monetization opportunities. Membership increased by 90% year-over-year to 3.2 million, with several exclusive services for premium members, including wealth management and private banking.

Robinhood is evolving beyond a simple trading platform, now aiming to establish itself as a comprehensive financial services company within the next decade. Its diverse offerings and appeal to younger consumers position it well to achieve the necessary 12.8% CAGR to grow $1,500 into $5,000.

Should You Invest $1,000 in Netflix Right Now?

Before purchasing stock in Netflix, consider:

The Motley Fool analyst team recently identified its 10 best stocks for investment, and Netflix did not make the list. The chosen stocks have the potential for substantial returns in the future.

Reflect on the past: If you invested $1,000 in Netflix when it was first recommended on December 17, 2004, you would have $613,951!* Similarly, if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, that investment would now be worth $796,353!*

It’s important to note that Stock Advisor has an average total return of 948%, significantly outperforming the S&P 500, which stands at 170%.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Netflix. 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.