Reaching a trillion-dollar valuation is a milestone that only a small cohort of companies have ever achieved. Right now, there are seven public companies with a market cap in excess of $1 trillion. Those companies are:
- Apple: $3.5 trillion
- Nvidia: $3.4 trillion
- Microsoft: $3.2 trillion
- Alphabet: $2 trillion
- Amazon: $1.9 trillion
- Meta Platforms: $1.4 trillion
- Taiwan Semiconductor Manufacturing: $1 trillion
In addition to the companies above, electric vehicle company Tesla and Warren Buffett's financial juggernaut, Berkshire Hathaway, have also had fleeting memberships in the trillion-dollar club in prior periods.
With the exception of Berkshire, all of the other companies that have managed to reach a trillion-dollar valuation share two things in common: Each is a technology company, and all of them are fueling the artificial intelligence (AI) revolution. While I suspect other AI opportunities may one day become a trillion-dollar stock, I see another company as a more likely candidate in the near term.
Below, I'm going to break down why Netflix (NFLX +2.77%) is my top pick for the first non-AI technology company to reach a trillion-dollar valuation.
NASDAQ: NFLX
Key Data Points
The king of the streaming realm
Over the last several years, the streaming landscape has become increasingly crowded. As viewers continue cutting the cord with legacy cable providers, networks are becoming pressed to source growth from other opportunities. One of the more widely adopted strategies has become for networks to move original content to their own streaming platforms.
While such an approach gives viewers added optionality when it comes to consuming content, I think people have become overwhelmed (and perhaps irritated) by all of these new services. Said in a different way, I would not be surprised if the average television enthusiast has at least signed up for and tried out newer services such as Peacock and Paramount+, for example. My question is how long do these new users generally stay? My guess is not long.
According to a research study published by Big Four accounting firm EY, the "average streaming household" subscribes to five platforms. But with that said, two-thirds of subscribers have cancelled some of their services within the last year -- with 37% of respondents saying some of these services weren't being used.
Yet despite the intense competition for viewership and attention, one platform stands out among the pack. With 283 million subscribers around the world, Netflix has built formidable scale well ahead of any competing service.
While much of the company's growth to date stems from its deep library containing both original content and some of the entertainment industry's most beloved television and movie franchises, other opportunities on the horizon could spell a whole new wave of growth for Netflix.
Image source: Getty Images.
New opportunities on the horizon
During the third quarter (ended Sept. 30), Netflix added 5.1 million new subscribers -- much higher than Wall Street's expectations. One of the drivers of this growth can be traced to the company's new advertising tier.
A couple of years ago, Netflix introduced a lower-priced subscription offering that includes advertisement breaks while watching a show or movie. According to management, membership in the ads plan grew 35% year over year during the third quarter.
While this growth is encouraging, management told investors that advertising isn't expected "to be a primary driver of our revenue growth in 2025." Considering Netflix's revenue is already growing 15% year over year, I find the future upside from advertising particularly bullish.
Another opportunity that I think will pay off for Netflix is the introduction of its immersive experiences, called Netflix House. To be clear, I don't think Netflix House will be a big money-maker for the company -- at least not directly.
But in a similar vein to that of Disney World, I think bringing fans of Netflix's hit shows into an immersive world where they can experience content in a different way will help strengthen the company's brand loyalty. To me, Netflix is evolving into a more full-spectrum entertainment company seeking to connect with its users beyond streaming videos.
The path to $1 trillion looks achievable
For the full year 2024, Netflix management is guiding for total revenue of about $38.8 billion. Moreover, management said during the third quarter earnings call that revenue in 2025 should be in the range of $43 billion to $44 billion -- or about 11% year over year.
Assuming an 11% growth rate for the next decade, Netflix would generate $96.2 billion in sales by 2033. If I use the company's current price-to-sales (P/S) ratio of 8.8, I would reach a market cap of $847 billion by the end of my forecast period.
Indeed, this is below my trillion-dollar prediction. But here's the thing, forecasting Netflix's revenue so far out into the future is quite challenging considering investors don't have a lot of insight into what the initiatives surrounding advertising and Netflix House could yield.
In my opinion, Netflix House will help the company maintain its subscriber base while opening up a new door to acquire new viewers. For this reason, I think the real opportunity with Netflix House is improving customer lifetime value (LTV) mechanics. Furthermore, I see the advertising opportunity as one that should help entice viewers to stay on the platform for a lower cost compared to other streaming alternatives.
As such, I think Netflix will begin witnessing both accelerated revenue and operating profits in the coming years. Should Netflix start generating higher margins and industry-leading unit economics on its subscriber base, I think there's a good chance the company's valuation multiples could expand significantly.
For this reason, I see Netflix as a likely candidate to become a member of the trillion-dollar club over the next several years.
