Last spring, Netflix (NFLX 0.48%) executives outlined a plan to achieve a $1 trillion valuation for the business by 2030. However, the stock price hasn't exactly moved in the right direction since then.
During the past nine months, the company's market cap has gone from about $400 billion to $365 billion, as of this writing. With Netflix's disappointing outlook for 2026 and negative investor sentiment about its planned acquisition of Warner Bros. Discovery, the path to $1 trillion looks much harder than it did just a few quarters ago.
As the stock trades near its 52-week low, now may be a great opportunity for long-term investors to buy shares.
Image source: Netflix.
How management expects to reach $1 trillion
Netflix's financial strategy is fairly straightforward. Since its primary revenue source is monthly subscriptions, it has a pretty good idea of how much it will bring in each year. It then creates a set operating-margin target. From there, it can plan its largest expense -- content. Although it won't always nail it, it can do a pretty good job of hitting its operating-margin goal.
Management outlined plans to double its 2024 revenue of $39 billion by 2030 at last year's meeting, which included the $1 trillion market-cap goal. That included $9 billion in global ad sales. Along with that, it expected to increase its operating income from $10 billion to $30 billion during the same period, which implies an operating margin of 38.5%.
At the time, management forecast revenue growth of 13% for 2025 and expectations for the operating margin to expand by 2 percentage points to 29%. Sustaining that pace through 2030 would put it exactly on target to reach its goals.
In fact, Netflix outperformed management's expectations for 2025. Revenue increased 16% and operating margin expanded nearly 3 percentage points to 29.5%. Management also disclosed that advertising revenue climbed more than 2.5-fold to more than $1.5 billion. It also reported that its subscriber count topped 325 million, up from a litle more than 300 million at the end of 2024.
But management's outlook for 2026 gave many investors pause. That sent the stock tumbling after its fourth-quarter earnings release.
NASDAQ: NFLX
Key Data Points
Is a big slowdown coming?
Last year's strong performance likely comes down to a couple of factors that won't be repeated in 2026.
First of all, Netflix benefited from a weakening dollar in international markets, which meant non-U.S. subscribers effectively paid more in U.S. dollars per month. That added more than half a billion dollars to the company's top line, according to its quarterly report. Management can't count on benefiting from favorable foreign-exchange rates again in 2026.
The second factor was an increase in its pricing, which went into effect in the first quarter for its largest markets, the U.S. and Canada. Although management suggested more price hikes could be coming this year in its most recent letter to shareholders, it's unlikely to push prices higher in the U.S. and Canada again. Exhibiting such pricing power while working to receive anticompetitive regulatory approval for its Warner Bros. Discovery acquisition wouldn't look good.
As such, the two main drivers of Netflix's revenue growth in 2026 will be advertising and international subscriber growth. Management expects advertising revenue to double this year, reaching $3 billion. International revenue growth slowed in the back half of the year on a constant-currency basis, up just 16.8% in the fourth quarter. Considering international subscribers make up just over half of Netflix's revenue, that makes management's overall revenue-growth outlook of 12% to 14% this year look reasonable.
Image source: Netflix.
Despite the expected revenue slowdown, the company is still on track to meet management's 2030 goals. It would only need to achieve 11% annual revenue growth, with consistent margin expansion of less than 2 percentage points per year, to meet its targets.
Meanwhile, management's plans to acquire most of Warner Bros. Discovery could weigh on its finances. The $83 billion acquisition will require Netflix to take on substantial debt. Although it's generating considerable free cash flow (as is Warner Bros. Discovery), it will still see its interest expense spike for several years as it works to pay down the debt over time. The acquisition also comes with execution risk, and it's unclear how accretive it will be to Netflix's operations.
Although management is on pace to meet its financial goals, the bigger challenge may be whether the market is willing to pay about 40 times per-share earnings (EPS) for a company with EPS growth in the mid-teens percentages. That's what it will need if it wants to reach a $1 trillion valuation, and that's a factor Netflix has little control over. However, with the stock dropping to a price of just 27 times forward earnings estimates, it seems like a great opportunity to buy a wonderful business at a fair price.
