What Netflix's financials could look like in 2031
Increasing profits as subscribers scale and content costs / user drops
I’ve been crunching some numbers on Netflix lately to figure out just how profitable the business could become by 2031. Netflix is an amazing business that I didn’t fully understand until 2020. For the better part of the last 5 years, I stayed away from the stock because I couldn’t figure out how the business could ever be profitable. I was also fearful about the amount of debt the company was taking on.
However, this was pretty lazy thinking on my part and the purpose of this post is to correct this by laying down some numbers. I’ll be making projections to 2031 and my starting point will be 2018.
2018
Customers : 139 million
Avg Monthly Revenue / Customer : $9.46
Total Annual Revenue : $15.79bn
Content Expense : $12bn
Revenue - Content Expense (Spread) : $3.79bn
2019
Customers : 167 million
Avg Monthly Revenue / Customer : $10.05
Total Annual Revenue : $20.15bn
Content Expense : $14.6bn
Revenue - Content Expense (Spread) : $5.556bn
2020
Customers : 203 million
Avg Monthly Revenue / Customer : $10.26
Total Annual Revenue : $24.99bn
Content Expense : $17.3bn
Revenue - Content Expense (Spread) : $7.797bn
Now let’s do some projections for the above numbers in 2031. We shall begin with growth assumptions.
Growth Assumptions for Financials from 2021-2031.
Subscriber Growth
Subscribers grow 20% Year on Year in 2021, 2022, 2023.
Subscriber growth slows to 17% YoY in 2024, 2025, 2026.
Subscriber growth slows to 15% YoY in 2027, 2028, 2029
Subscriber growth slows to 10% YoY in 2030, 2031
Monthly Revenue / User
2021, 2022 : $10
2023, 2024, 2025 : $11
2026, 2027, 2028, 2029, 2030, 2031 : $12
Content Expenses
Grows at 10% a year.
Expenses in 2031 will be $49.28bn
Netflix Possible Financials in 2031
2031 Netflix Financials after taking all growth assumptions into account and plotting it.
Customers : 1.033bn
Avg Monthly Revenue / Customer : $12
Total Annual Revenue : $148.75bn
Content Expense : $49.28bn
Revenue - Content Expense (Spread) : $99.47bn
Please bear in mind that this is based on the key growth assumptions above. If Netflix underperforms, it could be lower. There is upside as well particularly in Netflix’s ability to charge a higher price.
Netflix Possible Value in 2031
Let’s make a guess about NFLX’s 2031 company value using 2 multiples - Revenue & Spread
2020 Revenue Multiple (Market Cap / Revenue) : roughly 9.5x
2020 Spread Multiple (Market Cap / Spread) : roughly 30.5x
Let’s assume Revenue Multiple compresses to 4x in 2031. The Spread Multiple compresses to 10x.
Market Cap in 2031 (Revenue Multiple) : $592bn
Market Cap in 2031 (Spread Multiple) : $994.7bn
Both scenarios present an upside from today’s (26th March 2021) Market Cap of $222bn. I think Netflix is under excellent management and will continue growing. It is encouraging to see them investing in content tailored for new markets like India and South Korea. I am a customer of Netflix and I think the service has pricing power.
I have started accumulating shares in Netflix and will continue doing so in this mini bear market (March 2021).
**Disclaimer : I am not a licensed or certified financial advisor. This content is not investment advice and is merely opinion. You can lose money in the stock market. Proceed with caution.