Where Will Netflix Stock Be in 3 Years?
Key Points
Netflix is maturing after two decades of rapid subscriber growth.
That should translate into impressive earnings growth as the company pulls several monetization levers.
The current share price leaves plenty of room for upside. The stock could potentially double over three years.
Netflix (NASDAQ: NFLX) has been a bona fide growth stock for two decades. But all companies mature at some point, and that time has come for the streaming giant. The story is becoming less about subscriber growth and more about pricing power and monetization levers that will power the company's earnings growth.
It hasn't been a smooth transition for Netflix stock, which is still down nearly 40% from its highs seen last summer. Fortunately, I don't think the pain and anguish of falling stock prices will last much longer. Here's why the next three years look promising, and what that could mean for your portfolio.
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Robust profit growth through multiple levers
The best businesses have several ways to grow their top and bottom lines, and Netflix fits squarely into that. Of course, Netflix can still bring new subscribers to its platform. Just because that's no longer the primary growth engine doesn't mean it's irrelevant.
But the focus is changing. Netflix has built up several additional growth engines to help pick up the slack as subscriber growth matures. For instance, ad-supported subscriptions have become a major part of the puzzle, now reaching roughly 250 million people.
The company has also expanded its platform to live sports and events, podcasts, and video games. And lastly, Netflix can raise its prices, something it has already done in addition to cracking down on password-sharing.
Mapping where the stock can go from here
As you can see below, Netflix is growing by leaps and bounds over the past three years in the areas that count: revenue, cash flow, and earnings. Perhaps the market will appreciate that more at some point.
Data by YCharts.
For now, the stock's slump has knocked its valuation to less than 23 times its 2026 earnings estimates. Wall Street estimates call for earnings growth averaging 22% annually over the next three to five years.
Suppose for a second that Netflix's valuation doesn't change whatsoever. If the company grows as expected, the stock would roughly double over the next three years based on the earnings growth alone. Even if earnings growth falls short of estimates, it's not a stretch to expect double-digit annualized returns barring Netflix simply imploding and growth falling off a cliff.
That's probably a good spot to ground your expectations for Netflix stock. It's easy to look back and see how much cheaper Netflix is relative to its historical norms, but Netflix isn't the same type of company it once was. There's nothing wrong with that; it's just an adjustment investors may want to consider.
That doesn't change the bottom line: Netflix is setting up nicely for patient investors to enjoy strong returns over the next few years.
Justin Pope 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.