There are few businesses that have taken care of investors the way Netflix (NFLX 0.96%) has. Since the company’s initial public offering in 2002, shares have skyrocketed, rising 80,080% (as of March 19). This means that if you invested a small sum of just $1,250 back then, you would be sitting on a seven-figure balance today from this single investment. That’s an unbelievable outcome.
Netflix’s market cap today exceeds $400 billion. But the business is surely still on the radar for many investors looking to put some money to work over the long haul.
If you buy this top streaming stock today, can it help you retire as a millionaire? I believe it’s important to learn what makes this company special before deciding if it should be in your portfolio.
A first-mover advantage
Investors need to understand the company’s scale. Netflix raked in $39 billion in revenue in 2024. That was up 16% year over year and 609% higher than a decade ago.
It counted 302 million subscribers as of Dec. 31. Again, this key metric has increased rapidly over the years. At the end of 2014, there were 57 million customers.
Perhaps no factor has contributed more to Netflix’s impressive ascent than its first-mover advantage. It was able to gain members and grow revenue rapidly because it was primarily competing against traditional cable TV and providing a superior experience. Of course, the competitive landscape has shifted, but the company is still in the lead.
And it’s easy to be optimistic. According to data from Nielsen, the streaming platform represented 8.2% of daily TV viewing time in the U.S. in February, behind only YouTube. Engagement will remain strong, especially with new seasons of incredibly popular shows Squid Game, Wednesday, and Stranger Things coming out in 2025.
Generating strong profitability
The company’s monster success in the streaming industry has become more apparent in the past few years, particularly as competing services have entered the market in an attempt to gain customers and scale up. This couldn’t be more obvious when you look at profitability, something Netflix excels at these days.
It has such a large revenue and subscriber base that its bottom line has exploded. The company’s operating margin went from 13% in 2019 to 27% last year, with executives targeting 29% in 2025. Its scalability is showing up right before our eyes.
The company operates a fixed-cost business model; serving every additional user has minimal marginal costs, as is typically the case with digital services. In theory, content costs don’t need to grow year to year, at least in lockstep with sales gains. So, by adding more subscribers and increasing revenue, earnings have soared. This trend has also been supported by occasional price hikes.
Over the next three years, consensus analyst estimates call for diluted earnings per share to rise at a compound annual rate of 22.6%. This is in line with the past three years.
Retiring a millionaire
As mentioned previously, Netflix has historically been a wonderful stock to own. This has now become a dominant media and entertainment company.
Unfortunately, the shares aren’t cheap. Although they’re down 9% from their peak in February, they trade at a forward price-to-earnings ratio of 38.6. This is far from a bargain, and it’s a premium to the trailing-two-year average. Consequently, I don’t believe the shares make for a smart buy today, even though they could still rise in the years ahead.
Getting to the question of whether the stock can help you retire a millionaire, I think two crucial factors are at play. If you have a very long time horizon and are able to invest a bigger sum up front, then the chances are greater. Just don’t expect a repeat of past returns.
Moreover, investors shouldn’t hope that a single stock can get them to the promised land. Diversification is the best path to lasting investing success.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
