Recent market volatility has had little impact on Netflix (NFLX 0.05%). The company's shares are up by 36% this year, even as the S&P 500 is barely in the green. Netflix owes this performance to solid financial results and strong guidance. The streaming specialist is firing on all cylinders, and the best news is that it's not too late to invest in the stock.
In the next five years, Netflix's shares could double in value -- and for those keeping score, that's a compound annual growth rate of 14.9%.
The path to $1 trillion
Netflix's market capitalization is currently $515 billion. Management wants to get to $1 trillion by 2030. There aren't many companies worth that much. All are massively successful leaders in their niches. That description also fits Netflix, which is the undisputed leader in the streaming industry. Of course, that doesn't mean the stock will reach the $1 trillion mark by 2030, but that goal is by no means out of the company's reach.
Image source: Getty Images.
Netflix has several opportunities that could enable it to double key metrics over the next five years. Although it no longer reports exact membership figures in its quarterly updates, membership growth remains a key driver of revenue growth. Netflix also benefited from recent price hikes. The company can afford it thanks to its incredibly strong brand name. It won't lose a significant number of subscribers even as it charges higher fees for its services.
In fact, it should continue to gain more. These two factors should drive strong results in the medium term, and there are other factors to consider as well. Netflix launched an ad-supported tier in late 2022, and it recently hit 94 million monthly active users. For context, that's more than Hulu or Apple TV.
That's another testament to Netflix's brand power, but its ad service still has massive potential. The streaming specialist has recently introduced various features to enhance its ad business, which should yield benefits in the long run. Between growing subs, rising engagement, and an improving advertising business, Netflix's revenue, earnings, and free cash flow could at least double in the next five years.
Beyond 2030
There is more good news for investors. Netflix's prospects are attractive well beyond 2030. The company reported that its ad-supported tier has more 18 to 34-year-olds than any broadcast or cable network in the U.S. That's a significant statistic, and here's why: Though streaming has been replacing cable, the latter isn't dead yet, not by a long shot. It's being kept alive, but primarily by older people who are more likely to have cable.
Netflix is the future of entertainment, and it will continue to take over as demographic shifts take hold -- that is, as younger generations account for an increasingly larger percentage of the population. This won't happen overnight. In fact, it could take a few decades. In other words, there remains a substantial long-term opportunity for Netflix. True, it will have to compete with other streaming giants. However, Netflix has remained a leader even as competition has become fiercer. The company's brand name is only one reason for that success.
Netflix's content strategy is another factor driving its success. Thanks to its massive ecosystem of users, Netflix can analyze viewing patterns and preferences to help guide the shows and movies it produces. That means successful shows spread rapidly through word of mouth, increase the company's subscribers and engagement, and grant Netflix access to even more data it can use to make even better content -- a classic example of the network effect.
Netflix should be able to thrive over the long run despite the proliferation of streaming services. So, while there is a great chance the stock will double in the next five years and reach a $1 trillion valuation, the company's long-term prospects are equally attractive. It's still a great time to invest in Netflix, even after the run it has experienced in the past two years.
