Since its initial public offering in May 2002, Netflix (NASDAQ: NFLX) has delivered a mind numbing 52,150% return — making it a generational wealth builder for long-term investors. But during the past five years, it may surprise you to learn that Netflix has produced a negative 7% return while the Nasdaq Composite (NASDAQINDEX: ^IXIC) has jumped 75% and the S&P 500 (SNPINDEX: ^GSPC) has popped 66%.
Netflix is at its lowest level in more than two years. Here’s why Netflix has gone from a market darling to the bargain barrel, why I predict it will begin paying a dividend, and why it’s a buying opportunity for long-term investors.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Netflix’s trailing 12-month revenue hits $50 billion
In its first quarter 2024 shareholder letter, Netflix said it would stop reporting quarterly membership numbers and average revenue per membership in 2025, preferring instead to focus on revenue, operating margins, and engagement (time spent) on its platform.
Netflix partially backed up that decision, as its revenue and earnings are at all-time highs, and operating margins have expanded nicely. But those figures are inflated by a one-time $2.8 billion termination fee from Skydance — which outbid Netflix for Warner Bros. Discovery.
Engagement has been solid, but Netflix isn’t exactly taking market share either. According to Nielsen’s August data, Netflix accounted for 7.7% of U.S. monthly TV viewing, well ahead of its streaming peers but lagging significantly behind Alphabet-owned YouTube’s 15.8%.
Ads are forecasted at just 5.3% of total revenue
Netflix’s lower-cost ad-supported tier has been a key driver of higher engagement and TV time. But Netflix is now projecting $2.7 billion in full-year 2026 advertising revenue, down from an earlier forecast of $3 billion. Based on company estimates for $51.1 billion in full-year revenue, advertising accounts for just 5.3% of total revenue — underscoring how Netflix relies heavily on its ad-free standard and premium subscriptions. However, that isn’t necessarily a bad thing.
A more engaged audience supports spending on high-quality programming and is likely more accepting of price increases. And if Netflix expects to rely less on subscription growth, then it needs to retain pricing power to drive margins. Earlier this year, Netflix implemented its third price increase in less than three years, which is a bold strategy given inflationary pressures on consumers. But so far, its results indicate a mostly resilient subscriber base.
