Netflix (NFLX -6.63%) has been one of the best performing stocks this century. Shares have skyrocketed 59,900% in the past two decades (as of April 3). Early investors who held on through the ups and downs have been richly rewarded, with some likely accumulating massive amounts of wealth.
This streaming stock currently trades 12% off its peak. And the company carries a market capitalization of $390 billion. But if you bought Netflix today, could you become a millionaire?
Finding ways to grow
Netflix deserves credit for completely disrupting the media industry. The management team was convinced in the early days that the internet was going to fundamentally change how people consumed video entertainment. By letting viewers select from a huge catalog of shows and movies, with the ability to watch whenever they wanted, Netflix provided a superior experience compared to traditional cable TV.
Growth over the years has been stellar. Netflix reported $39 billion in revenue in 2024, which was up a whopping 609% from 2014. The subscriber count now stands at 302 million, as the company rapidly brought on new customers, propelling the cord-cutting trend.
Even in recent years, Netflix has found new ways to grow. Executives cracked down on password sharing to better monetize people who were using others’ accounts. The business introduced a cheaper, ad-supported tier — a strategic pivot that was previously believed would never happen. It has proven to be extremely successful, registering 30% quarter-over-quarter membership growth in the fourth quarter.
Looking ahead, Netflix still has potential to expand. “We’re less than 50% penetrated into connected households,” CFO Spence Neumann said on the Q4 2024 earnings call. Of course, these non-members will be harder to convince; otherwise, they would have already signed up for a Netflix account.
As the company is gradually approaching a saturation point here in the U.S., growth will largely come from foreign markets that have less pricing power. This will probably result in revenue increasing at a slower pace.
Scale creates a lucrative business model
Other streaming services are struggling with profitability. Here’s where Netflix bucks the trend. Operating income surged 300% just in the last five years. And the leadership team expects to report a superb operating margin of 29% in 2025, with free cash flow projected at $8 billion this year.
Netflix is a very profitable company. That’s because it has reached massive scale that allows it to spend sizable sums on content ($18 billion planned for this year) that it’s able to spread out over a huge subscriber count and revenue base ($44 billion forecast for this year). It’s reasonable to expect revenue growth to outpace cash-content costs looking ahead.
Seven-figure dreams
Every investor wants to make a ton of money from the stocks that they own. The entire premise of investing is to be able to raise your purchasing power over time. This is exactly what Netflix has done for its longtime shareholders.
I think the future won’t be as kind. Prospective investors should probably press pause on their hopes of eventually becoming millionaires from owning this stock. There are two reasons why I feel this way.
One obvious reason is that Netflix is a more mature enterprise today than it was 20 years ago. Consequently, growth rates will naturally come down. The other reason investors should temper expectations is because of the current valuation. Shares trade at a price-to-earnings (P/E) ratio of 47. This is a steep entry point for new shareholders.
This is one of the best businesses out there. But Netflix isn’t going to get you into the seven-figure club. Investors should focus on building up a diversified portfolio that they can own for the long term.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.