Many companies create change in their small corners of the market, ushering in new, more effective products and services for a small population of consumers. However, it’s another matter to completely transform an entire industry. Companies who manage that sort of coup – the disruptive innovators – are few and far between.
Examples of disruptors include Apple (AAPL) and Microsoft (MSFT), who brought the power of computers to every home and office. There is also Amazon (AMZN), the company that took e-commerce mainstream, and Facebook, which took personal relationships and business marketing online.
Netflix has an important place on the shortlist of disruptive innovators, too. It was the company that single-handedly retired the then-booming brick-and-mortar movie rental business (remember Blockbuster?), offering DVD rentals by mail and later through an advanced streaming service.
Since Netflix demonstrated that there is virtually no limit to consumer demand for streaming video, many other services have attempted to duplicate the Netflix model – for example, Hulu, Disney+, Amazon Prime Video, and HBO Max. However, none have succeeded in pushing Netflix, the market leader, from its first-place position. Its share prices keep rising, making investors wonder how high can Netflix stock go?
Is Netflix a Large Cap Stock?
In 1997, entrepreneurs Marc Randolph and Reed Hastings had an illuminating idea. Why go out to rent a movie when the purpose of renting a movie is to spend a night in? They knew DVDs could travel safely by mail, so they devised a system to deliver the discs to their customers’ homes quickly and efficiently. People loved it.
Ten years later, the company added a video streaming service long before any other business considered such a product. Through careful collection and analysis of user data, Netflix knew exactly how to keep its customers watching. Subscriptions grew, and Netflix share prices went up – and up – and up.
By early 2011, Netflix entered large-cap stock territory with a value that exceeded $10 billion. Its market cap drifted back down by the end of the year before taking off again in 2013. From there, the company’s value hit milestone after milestone – $50 billion in 2015, $100 billion in 2018, and $200 billion in 2020.
Today, Netflix is valued at more than $235 billion, classifying it as part of the rarely-used mega-cap stock category.
What Is The Highest Netflix Stock Has Ever Been?
In 2020, COVID-19 brought many businesses to their knees, but not Netflix.
Everyone stayed home, and that meant more time for streaming. In the early days of the pandemic, Netflix established itself as the entertainment option of choice with an eight-part documentary called The Tiger King. An astonishing 34.3 million people watched the series within ten days of its release.
The Tiger King became part of the national conversation in a population that was tired of talking about COVID-19. That, coupled with increased demand for at-home entertainment, meant new subscriptions kept rolling in over the remainder of the year.
This trend continued into 2021, driving profits up more than ever, which led to the highest Netflix stock has ever been – a price of $593.29 per share.
Is Netflix Stock Overvalued?
Netflix stock, like its tech peers, commands a price that is higher than standard financial ratios would support, but is Netflix stock overvalued?
A majority of analysts say no. Netflix has a long list of advantages that put it in a strong position to continue its growth – and its profits.
Netflix was the first streaming service of its kind, and that gave it a huge head start in amassing a loyal customer base. Since the company launched, it has collected the sort of data that makes it possible to offer customized selections to specific users, keeping them coming back for more.
More importantly, as a first-mover, Netflix’s technology is second-to-none. Certainly, competitors tend to duplicate Netflix’s most popular features – eventually – but Netflix easily maintains its position as leader of streaming tech.
Aside from first-mover advantages, Netflix has made additional strategic decisions that will contribute to short-term and long-term growth. For example, it invests heavily in exclusive content which attracts and retains viewers. This year’s budget earmarked $17 billion for new content – far more than any industry newcomer can reasonably afford.
So, in summary, Netflix is expensive, but is Netflix stock overvalued? No. In fact, a look at analysts’ price targets illustrates that, if anything, the stock could be undervalued.
Netflix Analyst Price Targets
One point immediately jumps out in a brief examination of current Netflix analyst price targets – nearly everyone agrees that the stock is overweight. Still, it is expected to deliver better than average returns as compared to its industry peers.
In addition to that overweight rating, it is worth noting that most analysts believe Netflix stock is a buy. The most optimistic analysts suggest a 12-month target of $1,154.00, and the average comes in at $623.47.
If share prices come anywhere close to that average, investors who buy now will see a handsome profit.
What Can Stop Netflix Stock?
The biggest challenge facing Netflix comes from subscriber churn. Thus far, neither price increases nor competing services have caused the company to lose more members than it gains, but that could change for any number of reasons.
In a post-COVID world, people might rethink how much time they want to spend streaming video when there are other entertainment options available. Or, if Netflix finally cracks down on password sharing, members might cancel in protest.
Consumers might lose interest in or lack funds to subscribe to multiple platforms and choose a favorite – one that isn’t Netflix. Will that happen at a high enough rate to impact profitability? Probably not – but it’s not outside the realm of possibility.
It is getting harder for Netflix to bring on new users, primarily because it has saturated its biggest markets already. If the company begins to lose subscribers without the growth it has become accustomed to, profits – and eventually share prices – might plateau or experience downward pressure.
How High Can Netflix Stock Go? The Bottom Line
Netflix might not be anywhere near a $1 trillion market cap like tech peers Apple, Microsoft, Amazon, Alphabet (Google), and occasionally Facebook, but it is generally grouped in the same category as those massive and exceptionally successful companies. Analysts hint that Netflix could eventually hit the same value. However, if that happens at all, it will likely be years from now.
For the moment, analysts aren’t looking more than 12 months ahead. Within that period, the bullish are cautiously optimistic that share prices could be close to $1,000.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.