Netflix Stock’s Last Decade Was Spectacular. But What Will the Next Decade Look Like?

Growth like that is hardly a crisis. But the hypergrowth that powered the stock’s 21% annualized return over the past decade is downshifting.

The case for the next decade

Netflix isn’t out of growth levers, though.

The most important is advertising. Management said it remains on track to roughly double its advertising revenue this year, to approximately $3 billion — about 6% of expected 2026 revenue. The company also said its U.S. upfront negotiations are in advanced stages, helped by strong advertiser interest in its live events lineup.

Live programming may be Netflix’s most efficient way to win new members. The company expects live events to account for just over 5% of its content spend this year but only about 1% of viewing hours. Yet live programming has accounted for six of its top 10 new-member sign-up days over the past five years. An expanded NFL agreement, including a week-one game this quarter and games on Thanksgiving Eve and Christmas, builds on that approach.

And shareholders are getting paid along the way. Netflix repurchased $4.7 billion of its own stock in Q2, its largest quarter of share repurchases ever, and it still has $27.1 billion left on its repurchase authorizations.

Then there’s the valuation. After Thursday’s after-hours drop, shares trade at about 21 times forward earnings and sit about 47% below their 52-week high of $127.75. For years, the problem with Netflix stock was a valuation that demanded hypergrowth. Today’s price asks for much less.

So, would I put $10,000 into Netflix stock today? Not yet.

A multiple of about 21 times forward earnings is arguably fair for a company growing revenue 13% to 14% with an expanding operating margin. But the growth rate is still stepping down quarter by quarter, and I’d like to see where it settles before buying. Of course, if the deceleration levels off, or if the advertising business scales faster than expected, I could change my mind.

The past decade turned $10,000 into about $68,500. The next one starts from a much bigger base, with a slower engine. So investors should keep their expectations in check.

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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

Netflix Stock’s Last Decade Was Spectacular. But What Will the Next Decade Look Like? was originally published by The Motley Fool