Netflix(US:NFLX) The Motley Fool·2025-05-27 00:30Core Viewpoint - Netflix aims to reach a $1 trillion valuation by 2030, leveraging its systematic approach to increasing earnings and expanding its operating margin [2][3][18] Company Overview - Netflix currently holds a valuation of $500 billion, making it the largest media company globally, unencumbered by declining legacy operations [5] - The company operates a subscription model that provides predictable revenue, allowing for effective planning of content expenses [6] Financial Performance - Netflix has increased its operating margin from 13% in 2019 to 26.7% in 2024, with a target of 29% for 2025 [7][9] - The company plans to double its revenue between 2024 and 2030 while aiming for a threefold increase in operating income, targeting an operating margin of approximately 40% by 2030 [9] Cash Flow and Investment - After becoming cash-flow positive in 2022, Netflix generated $6.9 billion in free cash flow in the previous year, with expectations to grow this to $8 billion in the current year [10] Strategic Shifts - Netflix has introduced an ad-supported tier, which management believes could double advertising revenue by 2025 and grow to a $9 billion business by 2030 [12] - The company faces challenges with the unpredictability of advertising revenue compared to subscription revenue, as well as balancing ad-supported and ad-free tiers [13][14] Market Position and Competition - The competitive landscape for streaming services limits Netflix's ability to raise prices significantly, as consumers may seek alternatives [16] - Despite challenges, the advertising tier may enhance revenue potential, although it introduces revenue unpredictability [17] Future Outlook - Netflix's goals appear achievable if the company maintains focus on double-digit revenue growth and incremental operating margin expansion [18] - Achieving a tripling of operating income would require a valuation of about 32 times its operating income by 2030, which is below its historical average [19]