Is the Netflix Board Aligned: What Will Netflix Look Like in 3 Years?

With a history of about 10x or more growth in the last 10 years across metrics (stock price, revenues, memberships), it can’t be easy for the Netflix (NASDAQ:NFLX) board to align on a common outlook for a seemingly simple question: What will Netflix look like in 3 years? We deep-dive on Netflix’s history here and forecast one path using an interactive dashboard. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation and also see more Trefis Media data here. Our future analyses will test other strategic alternatives, feel free to signup here and track the series.

What happened to Netflix Revenues, Subscribers, Content Acquisition Costs Over The Years?

• Netflix initially started with a DVD rental business in the U.S., making revenue through monthly subscription fees and sales of used DVDs around 1998. By the end of 2004, Netflix already had 2.6 million subscribers.
• In 2007, Netflix launched its first streaming product, Watch Now. The company continued to report both DVD mail and the streaming business under one segment until 2011. However, the DVD business started losing subscribers gradually and was segregated from domestic streaming revenues in 2011. In the same year, Netflix also stepped up into international markets with an initial presence in Canada and Latin America. Overall, the company’s total subscribers grew to over 26 million during this period.
• Netflix launched its first original show in 2013. By 2015, 90% of Netflix’s business was already from the streaming segments. International streaming’s contribution to total revenues had grown to 29%, while domestic streaming’s  share stood at 62%. Gradually, the subscriber count grew from 75 million in 2015 to around 150 million by the end of 2018. To add to that, Netflix’s international streaming revenue contribution (49%) to total revenues outgrew domestic streaming contribution for the first time in 2018.
• Content acquisition and licensing constitute more than 95% of the cost of revenues. This expense has been increasing due to continued investments in streaming content globally.

Can Netflix Revenues Be $28 Billion and Stock Worth $525 in 3 Years? 

• We forecast Netflix’s revenues to grow to $28 billion in 2021, based on our growth assumptions for both domestic and international streaming subscribers.
• We have assumed the company’s revenue growth to be slower as compared to previous years, due to an increase in competition for streaming content on various OTT (over-the-top) platforms such as Amazon Prime, Youtube, Hulu, HBO, and the upcoming Disney+ service.
• We have forecast net income margin and share count for 2021 based on historical trends.
• Using our EPS forecast of $4.89 and a forward P/E multiple of 107 in fiscal 2021, we estimate the fair value for Netflix’s stock to be around $525 in 3 years (reflecting a market cap of around $250 billion).
• Currently, Netflix’s stock stands at $346, with a P/E multiple of 123.4, and a market cap of $151 billion.

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