We might all wish that we'd bought shares of Netflix (NFLX -0.49%) 10 years ago. As of July 25, this category-creating enterprise has seen its stock price skyrocket 978% in the last decade. Look even further back, and the returns are truly eye-popping.

Netflix deserves credit for completely upending the media industry. The company's success probably puts it at the top of the list as a potential addition to long-term portfolios. But it's important to gain a deeper understanding.

Here are three things you need to know about Netflix before you buy this top streaming stock.

A sign displaying the Netflix logo on top of a building.

Image source: Netflix.

Benefits of scale

Netflix leveraged its first-mover advantage to rapidly grow its membership base in the early days of streaming, when the company was really only competing with traditional cable TV. Nowadays, Netflix is a scaled-up operator, generating $11.1 billion in revenue in the second quarter, and including more than 300 million households in its member base.

Investing in content and technology are huge fixed costs. This is why scale matters. Companies need to increase their revenue enough to become profitable on a consistent basis. Smaller peers have struggled with this.

Here's where Netflix truly shines. It spends massive amounts on content -- $18 billion in cash is planned for this year -- while still producing significant earnings. Operating margin is expected to be 29.5% in 2025. And the leadership team believes free cash flow will total $8 billion to $8.5 billion.

Successful strategic pivots

It's interesting to see how companies change over time, adapting to the shifting landscape in an effort to continue expanding. Netflix has made some smart moves, particularly in the past few years.

In November 2022, it introduced a cheaper ad-based tier, following what competitors were doing. This targeted a wider audience, particularly consumers who were price-sensitive. This offering is seeing robust demand.

In May 2023, management cracked down on households that were sharing passwords. Rivals Disney+ and HBO Max (a subsidiary of Warner Bros. Discovery) made similar decisions after Netflix.

And perhaps most notable is the company's foray into live events and live sports, a move co-founder and former CEO Reed Hastings previously said Netflix wouldn't make. The business prioritizes the economics of deals, though, ensuring they make sense from a financial perspective.

"We remain focused on ownable big breakthrough events," co-CEO Ted Sarandos said on the Q2 2025 earnings call. "Our audiences really love them." Netflix owns the rights to Christmas Day NFL games, and will air the next two FIFA Women's World Cups in the U.S.

Netflix's success at adapting over the years should encourage investors to give the management team the benefit of the doubt. Looking ahead, it's almost a certainty that the company will continue to tweak its business model to drive further growth.

Netflix's big opportunity

Netflix is already a winner in the streaming wars. However, there's still a sizable runway to keep the growth going. "We also think that we are a minority of our addressable market," co-CEO Greg Peters said on the Q1 2025 earnings call.

Of course, bringing on the next 100 million customers will be more challenging than it was to sign up the last 100 million -- otherwise, these people would already be subscribers. And because the biggest gains are likely to come from international markets, particularly in Asia, Africa, and Latin America (regions where people typically have lower incomes), Netflix won't be able to flex the pricing power that has worked so well in the U.S. and Canada.

Wall Street analysts believe Netflix's revenue will increase at a compound annual growth rate of 13.1% from 2024 to 2027. Over the very long term, I expect these gains to moderate into the single digits.

If you're thinking of buying Netflix stock, you're now familiar with its scale advantage, the evolution of its business model, and the opportunity ahead.