Investment in Netflix Stock Two Decades Ago: Here's Your Return Today
Netflix, the leading on-demand streaming entertainment provider, has been ramping up its content spending to attract and retain viewers. In 2021, the company spent a staggering $17.7 billion on content, marking a 50% increase from the previous year. This surge is a response to growing competition from industry giants like Walt Disney, Apple, Paramount, Amazon.com, and others.
Despite the significant investment in content, Netflix's stock has faced challenges. Prior to April 2022, the stock was in a decline due to sluggish subscriber growth and rising costs. Wall Street continues to put pressure on Netflix to grow its subscriber base.
Over the long term, however, Netflix has been a standout performer. Since its Initial Public Offering (IPO), it has delivered an extraordinary gain of approximately 112,700%. This far exceeds the typical returns from the broader market index, the S&P 500, during the same period.
Netflix's earnings growth has been strong, with a recent Earnings Per Share (EPS) growth rate of 27.8% compounded annually over the past three years. However, the stock currently trades at a high valuation compared to the S&P 500. Its price-to-earnings (P/E) ratio is 51.5, over twice the S&P 500's P/E of about 24.7.
Looking forward, analysts expect Netflix to grow its EPS to $30.87 in 2026, placing its forward P/E around 38, still above the S&P 500 but lower than the current P/E.
In recent months, Netflix's stock price has been flat to slightly down, underperforming the S&P 500 over that short period.
Netflix serves over 300 million paid memberships in more than 190 countries, offering a vast library of TV series, films, and games. The company boasts the best brand in the streaming industry.
In response to financial pressures, Netflix reduced its content spending to about $13 billion in 2023. The company plans to spend $16 billion on content in 2024 and $18 billion in 2025.
Investors expect Netflix to leverage these investments into significant subscriber growth. If $1,000 was invested in Netflix stock 20 years ago, it would be worth approximately $389,000 today, generating an annualized total return of 34.4%. By comparison, $1,000 invested in the S&P 500 over the same time frame would be worth approximately $7,500 today, with dividends included.
As of now, the Street's consensus recommendation for Netflix is highly bullish, with 22 analysts rating it as Strong Buy, 6 as Buy, 16 as Hold, and 2 as Sell. This consensus recommendation translates to a Buy rating with strong conviction.
[1] Source: FactSet, as of August 2022 [2] Source: Yahoo Finance, as of August 2022 [3] Source: Netflix Q1 2022 Earnings Report, April 2022
Technology has played a significant role in Netflix's success, enabling the company to stream high-quality content to its global audience. As the competition in the finance sector intensifies, analysts believe that investing in Netflix could yield high returns, given its strong earnings growth and bullish consensus among financial experts.
