Netflix Inc. (NASDAQ:NFLX) has been the one of the best-performing stocks on the market in recent years. Over the last five years, the stock has skyrocketed 2,200%, and is up a whopping 7,270% through the last decade. 

However, Netflix's future has long been the subject of debate. Naysayers believe that the company will eventually succumb to competition, or that the stock will crash as profit growth simply won't justify the sky-high valuation. Others question Netflix's expanding negative free cash flow and growing debt burden, which it needs to fund its content expenses -- $6 billion this year.

The Netflix offices

Image source: Netflix.

Still, Netflix has consistently proven the doubters wrong, making mincemeat of the short-sellers. Its latest quarterly report shows why. Netflix added 5.2 million subscribers, much better than the 3.2 million it had forecast, and set a new record for the second quarter. That growth came on the back of its biggest-ever content release in a single quarter, including 14 new seasons of original series. 

But where does Netflix go from here? Let's take a look at the question on every investor's mind.

Where will Netflix be in 10 years?

Netflix spells out its opinion on its own future and that of the industry in its Long-Term View statement on its investor website. The company says it sees a market of 60 million to 90 million members in the U.S. Last year, it added 4.7 million domestic members, with another 2.5 million joining in the first half of this year. After reaching 52 million domestic members in its latest report, Netflix could hit the low end of that range in less than two years.

The chart below shows three scenarios for the domestic market in 2027. 

 Metric Worst-Case Scenario Average-Case Scenario Best-Case Scenario
Domestic membership 72 million 82 million 92 million
Monthly average price $15 $16 $17
Annual domestic streaming revenue (in millions) $12,960 $15,744 $18,768

Source: Author's projections based on SEC filings.

Netflix made $5.1 billion in domestic revenue last year with a monthly average price of about $10. The above cases assume price hikes along with increased membership, as Netflix raised prices last year by $2 a month on longtime subscribers and is likely to continue doing so as it spends more on content. By comparison, rivals like HBO Now already charge $15 a month.

Even the average-case scenario above envisions revenue more than tripling over the next decade, growing by about 12% a year, with just a modest average increase of 3 million subscribers per year. Considering the company's current momentum and market power, such growth seems well within reach.

The international market

The international market is harder to figure out. With about 125 million households in the U.S., Netflix will eventually run up against a hard ceiling on growth domestically, but the addressable market abroad is much larger and will expand as technology advances. Netflix does not have a growth target abroad, but the international market overtook domestic subscribership last quarter, and is growing much faster. Last year, Netflix added 14.3 million subscribers internationally, and has signed up another 7.7 million through the first half of this year.

The chart below shows what Netflix's international numbers might look like in 10 years.

 Metric Worst-Case Scenario Average-Case Scenario Best-Case Scenario
International membership 130 million  150 million  170 million
Average monthly price $12 $14 $16
Annual international revenue $18,720 $25,200 $32,640

Source: Author's projections based on SEC filings.

As you can see, international revenue has the potential to explode. If Netflix can reach the best-case scenario, revenue would increase by 10 times from last year's $3.2 billion. The average monthly price today internationally is about $8 a month, and the best-case scenario envisions the company adding 12 million members a year. As Netflix adds more foreign languages and native content, the international market should eventually contribute the bulk of profits.

Other revenue streams

As Netflix grows, it's likely to add on more revenue streams as it transforms into an entertainment powerhouse much like Walt Disney Co. (NYSE:DIS). In particular, licensing its content for toys and merchandise, much like Disney does, could present a huge opportunity for the company, especially as it creates more hit shows and movies. Netflix has already begun doing this with the surprise sci-fi hit Stranger Things, and one analyst said Netflix could soon have a $1 billion merchandising business. As the company adds more programming, especially for kids, that opportunity could be huge.

In addition to toys and merchandise, theme park rides have also been a lucrative way to license popular characters, movies, or storylines, giving Netflix the possibility of tying up with Disney or Comcast, which owns Universal Studios theme parks, should it have a show or a movie that fits with such an experience.  

Earlier this year, Netflix also struck a licensing deal with Baidu (NASDAQ: BIDU) to enter China. With the streamer being blocked from the world's biggest movie market, licensing in China is the next best option and could yield a valuable revenue stream. 

Finally, the DVD-by-mail business should still be alive then. As dedicated cinephiles know it's the biggest movie library available. 

The bottom line

Netflix is targeting 7% operating income this year and 4% net income. As the international market scales up, profitability should increase, and the company should start to mirror more traditional media companies with double-digit profit margins. Putting the scenarios above together with an estimate of profits give us the following:

 Metric Worst-Case Scenario Average-Case Scenario Best-Case Scenario
Total streaming revenue 31,680 40,944 51,408
Net profit margin 10% 12% 14%
Net income (in millions) $3,168 $4,913 7,197

Source: Author's projects based on SEC filings.

According to the scenarios above, which do not include additional revenue streams like licensing, Netflix should have about $3 billion to $7 billion in revenue in 2027. Its price-to-earnings ratio will compress over time, but with its market power and growth opportunities, it could still command a valuation of 40 or 50 then. Based on the forecast above, Netflix shares could triple in value, or better, if the best-case scenario becomes reality.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.