Shares of Netflix (NFLX -0.35%) have likely minted many millionaires over the years. If you had invested $10,000 in its initial public offering (IPO), you would have more than $10 million today.
There probably aren't too many who invested $10,000 at its IPO and still own Netflix stock today, which climbed and crashed on many occasions. But those who invested early and held their positions are enjoying fabulous returns.
Although it isn't that young growth stock anymore, it has other things going for it. Today, it's a household name with formidable assets, and it's the leading paid streaming service. Can it still set you up for life today?
Streaming for all
Netflix has gone through several iterations on its way to becoming the leading global streaming company. It went public in 2002, five years before it became a streaming company. You would have had to have confidence in its chances as a DVD rental company to have invested at the time, so early investors either saw a great spark of innovation or were just lucky.
Today, the company services more than 300 million global viewers through its premium paid subscription channel as well as its relatively new ad-supported network. It generates increased revenue through more subscriptions, price hikes, and advertising. As more people join the ad-supported tier, it gets higher ad revenue through increased views.
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The company uses a top-down margin model, which means it determines what kind of margin it wants to have and spends accordingly. That could restrain how much content it produced at a particular time, but it ensures efficiency and profitability.
In the 2025 first quarter, revenue increased 12.5% year over year, and operating income increased 27%. Operating margin expanded from 28.1% to 31.7%. Management is guiding for revenue to increase 15.4% in the second quarter and for an operating margin of 33.3%, up from 27.2% last year.
Upcoming opportunities
Netflix shifted directions several times in the past, from its origins as a DVD company to streaming, and from a premium network to offering the ad-supported tier. There have been worries multiple times about where it might be headed, but it has always landed on its feet and continued to run.
The accelerated shift to streaming that began when the pandemic started is still winding down, and that was followed by the ad tier and a pivot to offering gaming. There hasn't been a shortage of new opportunities over the past few years, but I wouldn't be able to envision what the next stage could be.
The field is quite full today, with many of the smaller players consolidating or breaking up, figuring out where they belong in the world of streaming. Netflix has been the steady and stable leader throughout this time.
The company now produces world-class films that can compete with the best studios. It has had some limited runs of its films in theaters, but it hasn't taken that route as a significant part of its operating model. Although that could change if it makes sense, as streaming has eaten away at the box office, it doesn't seem that theaters are the next step for Netflix at this time.
Many companies have made the mistake of entering new areas that would seem complementary instead of focusing on their core competencies. It's always a balance for an innovator, and it could be something lucrative at some point in time.
A hefty price to pay
Netflix stock has delivered for shareholders, and it has a premium price tag to show for it. It trades at a price-to-earnings ratio (P/E) of 57 and a price-to-sales ratio (P/S) of 13.
It was recently reported that management had plans to reach a market cap of $1 trillion by 2030. That implies the stock almost doubling, and it's not really within its control.
However, it can take action to generate higher sales and profits and boost its price. I think that's an ambitious goal, but while possible, it's not likely. Netflix is a mature company, and it would have to keep up the growth it's reporting today to double revenue over the next five years -- it would require a compound annual growth rate of 15%.
However, that assumes the same premium P/S. If that goes down, it won't be able to double its market cap even with those growth rates.
So, unless you invest a lot of money and have a long time horizon, I don't think Netflix stock will set you up for life. But it can still be a valuable part of a wealth-creating portfolio and grow over time.
