Netflix's (NFLX 0.75%) stock closed at an all-time high of $691.69 last November. But today, the streaming video giant's shares trade at about $180 and are languishing at their lowest levels in about five years.

Netflix's stock crashed for three main reasons. Its growth cooled off in a post-lockdown world, it lost subscribers for the first time in more than a decade in the first quarter of 2022, and its operating margins declined as it ramped up its spending to counter its competitors. Its decision to launch a cheaper ad-supported tier also implied it was starved for new viewers.

A person watches a video on a laptop.

Image source: Getty Images.

Rising interest rates also exacerbated that sell-off by driving investors away from higher-growth tech stocks. At its all-time high, Netflix was valued at more than 60 times its projected earnings for 2022. But as of this writing, it trades at just 17 times forward earnings.

Should investors buy Netflix's stock while it remains out of favor? Let's see where it could be headed over the next five years to find out.

Is Netflix's heyday over?

Between 2016 and 2021, Netflix's annual revenue increased from $8.8 billion to $29.7 billion, representing a compound annual growth rate (CAGR) of 27.5%. Its number of year-end paid subscribers rose from 89.1 million to 221.8 million, which represented a CAGR of 20%.

But over the past three years, Netflix's revenue growth decelerated as it gained a higher mix of lower-revenue overseas subscribers. Its subscribers in the U.S. and Canada -- which generate the most revenue -- only accounted for 34% of its audience in 2021, compared to 54% (in the U.S. only) in 2016.

Growth (YOY)

FY 2017

FY 2018

FY 2019

FY 2020

FY 2021

Paid subscribers

24.2%

25.9%

20%

21.9%

8.9%

Revenue

32.4%

35.1%

27.6%

24%

18.9%

Data source: Netflix. YOY = Year over year.

Netflix aggressively expanded overseas because it was running out of room to grow in the U.S. and Canada. But at the same time, a growing number of formidable competitors -- including Walt Disney, Amazon, and Warner Bros. Discovery -- came after Netflix with their own streaming services.

Netflix cited competition as a major headwind in both the fourth quarter of 2021 and the first quarter of 2022, and it warned that it would continue to lose subscribers in the second quarter of 2022. As a result, analysts expect its revenue to rise just 9% for the full year as its earnings decline 3%. That dim forecast certainly suggests that Netflix's high-growth days are over.

Can Netflix turn things around over the next five years?

Looking further ahead, analysts expect Netflix's revenue to only increase by about 10% in both 2023 and 2024. However, they still expect its earnings to improve by 12% in 2023 and grow another 19% in 2024.

We should take those estimates with a grain of salt, but they imply that Netflix's business could stabilize as it raises its overseas fees, rolls out and expands its ad-supported tier, and cracks down on shared passwords.

Here's how much revenue Netflix's subscribers generated across its four main regions -- UCAN (U.S. and Canada), EMEA (Europe, Middle East, and Africa), LATAM (Latin America), and APAC (Asia-Pacific) in its latest quarter:

Region

Average Revenue per Subscriber

Growth* (YOY)

UCAN

$14.91

5%

EMEA

$11.56

6%

LATAM

$8.37

20%

APAC

$9.21

1%

Data source: Netflix. *Currency neutral basis. YOY = Year over year.

Therefore, Netflix will likely raise its rates in Latin America and Asia over the next five years. Both markets are still fertile regions: Market Data Forecast expects the Latin American streaming video market to grow at a CAGR of 17.6% between 2020 and 2025, while Grand View Research believes the APAC market can grow at a CAGR of 22.4% between 2022 and 2030.

Netflix's forthcoming ad-supported tier could also widen its moat against similar options at Disney+ and HBO Max, as well as free ad-supported platforms like the Roku Channel. It could also diversify its business away from rigid subscription fees. That diversification could complement the expansion of its ecosystem beyond streaming videos with video games and other digital perks.

Netflix will still face intense competition for the foreseeable future, but its artificial intelligence-powered algorithms could help it develop more original hits -- like Squid Game, Stranger Things, and Bridgerton -- which aren't based on existing IPs. That strategy could further differentiate it from well-funded rivals like Disney.

Lastly, cracking down on shared passwords might initially spark a backlash against the company, but it could also enable Netflix to gradually gain paid subscribers again in mature markets like the U.S., Canada, and Europe.

Where will Netflix's stock be in five years?

If Netflix meets analysts' expectations over the next three years, then continues to grow its revenue by 10% annually with 15% earnings growth in 2025 and 2026, we can assume that it can generate roughly $47 billion in revenue and $19.20 per share in earnings by the final year.

Assuming Netflix is valued at about 20 times earnings, then its shares might be trading in the $380s by 2026. That would be more than double its current price -- but still well below its all-time high.