The $1 trillion club is exclusive. Does Netflix have what it takes to make the cut?
One trillion is a large number — very large.
Here’s a sense of how big it truly is: If you began counting aloud, taking one second for every number, it would take you more than 30,000 years to reach 1 trillion.
This same scale applies when talking about $1 trillion. It’s a difficult number to wrap your head around, but, at any rate, it’s a lot of money.
That said, there are several companies that boast market capitalizations above $1 trillion, and there will surely be others that will join the $1 trillion club over the next decade. Will Netflix (NFLX 0.49%) be one of them? Let’s take a look.
Image source: Getty Images.
What is the $1 trillion club, and who’s already in it?
First things first: A company’s market capitalization measures its value. It is calculated by multiplying a company’s stock price by the number of outstanding shares. For example, if a company’s stock trades for $100 and has 1 million shares outstanding, its market cap would be $100 million.
As of this writing, there are six American companies with a market cap above $1 trillion: Microsoft, Apple, Nvidia, Alphabet, Amazon, and Meta Platforms.
Additionally, there are 25 other American companies with market caps between $200 billion and $1 trillion. Companies of this size are known as megacap stocks. One of these companies is Netflix.
Can Netflix reach a $1 trillion valuation by 2035?
As of this writing, Netflix has a market cap of $280 billion. This figure, however, is not the company’s record high. Netflix’s stock is still recovering from the massive sell-off in 2021/22, which saw a 76% drawdown over about six months due to concerns over falling subscriber numbers. It’s important to note that since mid-2022, Netflix shares have been on a tear, with the stock up 246% and approaching its all-time high of $691.
Yet making a new all-time high is different from hitting a $1 trillion market cap. Indeed, Netflix would need to roughly quadruple its market cap over the next 10.5 years to get into the $1 trillion club.
Could it happen? Sure — but it won’t be easy.
Consider this: Netflix has the potential to grow at a compound annual growth rate (CAGR) of 13% for the next 10.5 years, potentially reaching a valuation of $1 trillion. This is a slightly faster rate than what the stock has achieved over the last five years, but it’s far from impossible.
NFLX Market Cap data by YCharts
Netflix’s market cap has grown from $153 billion to $279 billion over the last five years, a CAGR of 12.7%. If that rate of growth continued over the next 10.5 years, Netflix’s market cap would grow to $980 billion.
Is Netflix a buy now?
Regardless of whether Netflix reaches a $1 trillion valuation, there is a far larger consideration for investors: Is the stock a buy-and-hold candidate?
Financially, it’s clear Netflix is cooking with gas. The company’s revenue has grown about 15%, and earnings are up 79% year over year. Moreover, free cash flow per share — one of the most important financial measures for a stock — has grown 10x over the last five years.
Granted, there are some concerns with the stock’s valuation. Netflix’s price-to-earnings multiple is 45x — well above the average for the S&P 500.
Nevertheless, for investors willing to hold for the long term, the stock is worth considering. Indeed, at some point down the road, there could be 1 trillion reasons worth owning it.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Add Comment