In mid-2018, streaming giant Netflix (NASDAQ:NFLX) was flying high. The stock was at $420, up fourteen-fold over the past five years, and the consensus belief on Wall Street was that it was only a matter of time before Netflix stock took out $500, and then $600.
In July, though, Netflix reported its first subscriber miss since early 2017. The air came out of the wheels. Netflix stock plunged. Concerns related to a slowing global economy have kept the stock depressed ever since. Today, Netflix stock trades under $300. Just before Christmas, Netflix stock got as low as $230, a near 50% drop from its mid-2018 highs.
It may be hard to believe, but for long-term NFLX stock investors, all of this volatility is nothing more than just noise. Perhaps it’s silly to call a near 50% correction “noise”. But, that 50% correction comes on the heels a fourteen-fold increase in the stock over five years, so it really isn’t that big of a drop in the big picture. Plus, as I’ve pointed out before, NFLX stock has been subject to big drops like this before. The stock has come so far since those other big drops that, in retrospect, they are hardly noticeable in the long-term stock chart.
The core fundamentals underlying Netflix stock remain rock solid. People are still cutting the cord in bulk. Streaming adoption rates are still growing rapidly and globally. Netflix is still the king of the streaming space, and that leadership position is only growing with better, more unique and more diverse original content. The value prop of NFLX is still compelling, and the company still has a ton of wiggle room to hike prices.
Overall, the fundamentals for Netflix stock are still really good. As such, it really is only a matter of time before Netflix stock takes out $300, $400, $500 and even $600. For long-term investors, near-term pain is nothing more than an opportunity to load up for the long haul.
All The Trends Are Favorable for NFLX Stock
There are four big trends that influence the performance Netflix stock:
- Cord cutting
- Streaming adoption
- Netflix market share
- Price hikes
All four of those trends are moving in the right direction for NFLX, even now more so than ever before.
Here’s a closer look:
- Linear television viewership in the U.S. peaked in 2010, right before Netflix went all in with streaming in 2011. At that time, pay TV penetration rates were around 88%. Since then, they have consistently trended lower to just 78% today. This is a global phenomena. In China, South Korea, the U.K. and Italy, cord cutting is actually a bigger trend than it is in the U.S.
- As the cord cutting pool has grown, so has the volume of streaming video on demand subscriptions globally. The exact number of streaming subscribers in the world is unknown. But, the general trend is agreed upon by every major research firm: it’s going up, and fast. See here, here and here as proof.
- A lot of bears are concerned about competition, but Netflix has pushed aside competitive threats over the past several years thanks to innovation and original content. Ever since the streaming business became a standalone business in 2011, Netflix has increased the volume of global streaming net adds every year. Moreover, if you look at domestic and global search interest trends, it appears NFLX is rapidly gaining mind-share globally.
- Netflix still only costs $11 per month. Linear TV packages cost anywhere from $50 to $100 per month. Netflix undeniably has room to raise rates.
So long as these four trends remain favorable for Netflix, NFLX stock will gradually grow into its valuation, and head higher in a multi-year window. As such, it is only a matter of time before Netflix stock retakes its all time highs, and then some.
Where Netflix Stock Will Be In 10 Years
Today, Netflix has nearly 150 million people paying around $10-11 per month for the company’s streaming service. Meanwhile, cord cutting is still in its relative infancy, with most people still being pay TV subscribers. Netflix just started an aggressive international expansion, with international original content being a relatively new thing. And, Netflix originals are also still relatively new, with the big Stranger Things breakout happening less than three years ago.
All in all, this growth narrative is still in its early stages.
In 10 years, pay TV will be a thing of the past. NFLX will be a global brand. And there will ten-plus years of original content to support the streaming platform.
Thus, it isn’t too hard to imagine Netflix in ten years having 350 million people paying around $15 per month. That equates to a $63 billion revenue opportunity. I’ve long stated that 30% operating margins are the target by then. Assuming so, then $30 in earnings-per-share seems reasonable by fiscal 2027.
Growth stocks normally trade around 20X forward earnings. A 20 forward multiple on $30 in earnings-per-share implies a fiscal 2026 price target of $600.
Bottom Line on NFLX Stock
Given the strength and longevity of Netflix’s secular growth trends, it really is only a matter of time before Netflix stock hits $600. The road to $600 will be choppy. There will be big ups, and big downs. But, the end result will be a $600 price tag, meaning the big downs are simply opportunities to buy.
As of this writing, Luke Lango was long NFLX.