Can This Unstoppable Stock Join the $1 Trillion Club by 2035?

Yahoo

26-05-2025

Netflix has created an entirely new entertainment category that has propelled monster growth.
With its scaled-up internet platform, it now regularly generates sizable earnings and free cash flow.
Lofty projections aren't needed to see this company reach the exclusive trillion-dollar club in 10 years.
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As of this writing, there are 11 companies that carry a market capitalization of at least $1 trillion. Investors who got in on these businesses early on certainly benefited from huge portfolio gains. This might push you to try and identify potential new entrants to the 13-figure club in the future.
There's one industry-leading enterprise known for its innovative culture and success at disrupting an entire industry -- and it's currently worth about $500 billion. Its shares have been a monster winner, rising 1,250% just in the past decade.
Can this unstoppable stock join the coveted $1 trillion club by 2035? Here's what investors need to know.
The dominant company that could be on its way to a trillion-dollar valuation is Netflix (NASDAQ: NFLX). It deserves credit for introducing the world to streaming video entertainment, completely upending the traditional cable TV industry. Becoming a leader in the internet age definitely allows Netflix to be placed in the same category as businesses worth more than $1 trillion.
Netflix's growth has been impressive. Between 2014 and 2024, revenue increased at a compound annual rate of 21.6%. That top-line figure was up 12.5% in the first quarter. This was propelled, unsurprisingly, by quickly adding new members across the globe.
Previously unthinkable strategic pivots are now normal. Netflix has a presence in video games, and it's getting more involved in showing live events on the platform. What's more, the leadership team has found success by clamping down on password sharing. The cheaper, ad-based tier is also very popular, bringing in price-sensitive viewers.
These days, Netflix is a scaled media company that generates huge profits despite plans to spend $18 billion in cash on content just this year. Having a massive revenue and user base supports strong unit economics. The result is significant earnings and free cash flow generation.
The growth could continue for the foreseeable future. "We're less than 50% penetrated into connected households," CFO Spencer Neumann said on the Q4 2024 earnings call.
As mentioned, Netflix currently carries a market cap of about $500 billion. So, to see this figure reach $1 trillion in a decade, it would need to expand by 100% or roughly 7% per year. In the past 10 years, the market cap has climbed by a whopping 1,250%. Investors would expect a notable slowdown to occur, which I think is a reasonable way to view things.
Changes in the valuation can have a profound impact as well. Netflix shares trade at a price-to-earnings (P/E) ratio of 56.5, boosted by their incredible past performance. This is expensive, in my view. However, if we assume that the P/E multiple gets cut in half to 28 in 10 years, earnings per share (EPS) would need to grow at a compound annual rate of 15% between now and 2035 for the company to enter the $1 trillion club.
For what it's worth, Netflix's EPS has increased at a much faster clip in the previous decade. Taking all things into account, it's very easy to believe the market cap will get to a 13-figure number in 10 years.
It can certainly be exciting to own a stock that becomes a trillion-dollar enterprise. This usually means there are big returns on tap.
However, in this case, I believe investors should think twice before adding Netflix to their portfolios. Again, the valuation comes into play. At a P/E ratio that's approaching 60, I think there is zero margin of safety for prospective buyers. In other words, Netflix must execute flawlessly with no hiccups for investors to maybe have the chance to achieve adequate returns.
It's best to practice patience for now.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
Can This Unstoppable Stock Join the $1 Trillion Club by 2035? was originally published by The Motley Fool