ysabbir hariell lyndell
Martez Fields
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Media-streaming pioneer and award-winning content producer Netflix (NFLX -0.56%) will report fourth-quarter results on Tuesday evening. These quarterly updates often have market-moving powers, and that's especially true for Netflix's holiday-season results.
With another holiday-quarter report on tap, it's time to address a common question. Will Netflix ever join the elite club of trillion-dollar market caps? Rome wasn't built in a day and Netflix stands a long way away from that ambitious target, so let's give the company the rest of this decade to make that steep climb. Even so, what would it take to lift Netflix's stock all the way to $1 trillion by the year 2030?
As a longtime Netflix shareholder and regular table-pounder concerning the company's bright future, I would love to slap down a quick "yes" and move on to the next game-changing investor question. But that wouldn't be honest. I'm talking about a colossal jump here, from $212 billion to $1 trillion. That's nearly a fivefold gain, clocking in at a total of 370%.
I'll add another year to Netflix's trillion-dollar deadline by moving the goalpost to the end of 2030 instead of the January fireworks. Now I'm looking at a seven-year timespan. The compound average growth rate (CAGR) of that climb works out to 24.8%.
For instance, semiconductor designer Nvidia (NVDA -6.67%) has posted a 65% CAGR over the last decade, thanks to a 228% gain (more than a triple) in the last year alone. The current artificial intelligence (AI) furor has been good to Nvidia investors, making the stock the fastest gainer on the stock market over the last year and the last decade.
84 companies have achieved a CAGR of 24.8% or more in the last 10-year period, according to data from Macrotrends. As it turns out, Netflix is on that list with a 26.3% average growth rate. As I said, it can be done.
Then again, most of Netflix's 10-year gains materialized between 2014 and 2020. Video-streaming services were young and wild and exciting back then and Netflix had few serious challengers. It's a different ball of wax today with slower growth, price-sensitive consumers, and a plethora of rival services. The stock's CAGR in that market-stomping 5-year span works out to 48.3% while the most recent five-year increase stops at 7.2%. The slower subscriber growth in 2022 had brutal effects on this stock chart.
Tuesday's earnings report should clarify the company's progress with recently launched and upcoming business ideas, and the earnings call promises to be interesting. Whether this report sends Netflix's stock price to the basement or the moon, remember that it's just one step on a long journey. Management's commentary on the business plan is always more important than any of the financial metrics on tap.
At that speed, Netflix investors would see a 166% return by the end of 2030. The market cap would stand at $564 million by then, assuming a constant share count. The recently approved $10 billion buyback program (and similar follow-on profit-sharing programs) could accelerate investor returns along the way, but would also shrink the market cap by the same amount, thus pushing my trillion-dollar goal further away.
The trillion-dollar mirage would materialize after approximately 11 years at this hypothetical growth rate. Will Netflix still be a media-streaming specialist in 2035? Well, nobody knows. The whole world may have moved on to some new entertainment technology you and I haven't even imagined yet. If so, Netflix could be an obsolete afterthought with a shrinking market cap -- or perhaps leading the charge into yet another brand-new market as it did with DVD mailers and digital streaming services.
Betting on Netflix is a vote of confidence in its ability to reinvent and adapt in an ever-changing digital landscape. I feel good about its chances to deliver robust shareholder returns over the next few years, but the future gets murkier in the next decade. Anyone who claims to have a clear view of the far future is probably trying to sell you something.
The company should reach that lofty trillion-dollar target someday, but probably not by 2030 and the trillionaire club will probably grow from a handful of members to dozens of names by then. If and when Netflix crosses this goal line, investors will be used to trillion-dollar market footprints -- just a normal Tuesday night on Wall Street at that point.
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Entrepreneurs start a business because they have an idea, or they don't ever see themselves working for anyone. They might eventually sell and live out their life with money and be happy. Then there are serial entrepreneurs.
Serial entrepreneurs live and breathe the idea of creating a new business. They feed off creating something new. They may sell or step back from one business before starting another, or they may run multiple businesses simultaneously. Whatever it takes to remain at the helm of their idea.
Anthony Wood is a serial entrepreneur and Roku (ROKU) was his idea. Really, it was his sixth idea. In fact, Roku means "six" in the Japanese language and Wood took that as the company name in 2002 because it represented the sixth company that he started. Yes, like many entrepreneurs before him he had failed in other attempts to start a company. Complicating matters more, he didn't even know what Roku would become. That is until he did a stint at Netflix in 2007.
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