If you had invested $2,000 in Netflix (NFLX 0.18%) shortly after its IPO in May 2002 and held on, that position today would be worth almost $1.5 million, given that the company has averaged an annualized return of 31.72% over the past 24 years. It's fair, therefore, to say that Netflix has delivered returns that would have made average retail investors millionaires over the past 24 years. But could the company pull a similar feat off again over the next 25?
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First, a reality check
Netflix's current market cap is about $347 billion. If it were to average a 31.72% compound annual growth rate over the next 25 years, it would be worth about $340.1 trillion. That's high, to say the very least -- more than 10 times the current gross domestic product of the U.S. And that sort of growth rate would also be extraordinary over any extended period for any company, let alone one operating in a much more competitive industry than Netflix faced in the early days of video streaming.
With that in mind, investors shouldn't expect this outcome, or anything remotely approaching it. But that doesn't mean Netflix can't deliver excellent returns through the next couple of decades. Let's examine the bullish case for the streaming giant a little closer.
The king of streaming
Netflix has a vast ecosystem of subscribers and boasts strong pricing power, as evidenced by its strong retention rates and continued growth even as it raises prices. Netflix's ecosystem also provides it with plenty of data on viewer preferences and habits, allowing it to steer its content strategy in the right directions. This has resulted in many hit shows, some of which have won notable awards. And the more successful content it adds, the more widely its favorable brand presence spreads, leading to more subscribers and even more data.
NASDAQ: NFLX
Key Data Points
This dynamic grants Netflix a strong competitive advantage, allowing it to remain a leader in the streaming space that is far more competitive than it used to be. The company still has plenty of growth avenues. Its ad business is growing fast, and it is slowly entering new niches, including video podcasts, that could boost engagement at lower costs than its original productions.
It is also making a push into sports. And through the planned acquisition of Warner Bros., Netflix could gain access to a vast library of famous franchises and characters. Whether that deal will close is still uncertain, however, given that Paramount Skydance continues to pursue and bolster its hostile bid for Warner Bros. Discovery. These opportunities are all the more appealing given that streaming still accounts for just 47.5% of television viewing time in the U.S. as of December.
There is still ample room for the company to grow. Netflix won't turn $2,000 into $1.5 million in the next 25 years. But it could deliver strong growth over the next two decades, and l as part of a well-diversified portfolio, it could help investors with enough starting capital and a steady habit of adding to their investments become millionaires.
