There are some companies that have made huge profits for their shareholders. Netflix (NASDAQ:NFLX) is the perfect example of a highly successful investment.

In the last 20 years Streaming service stock has risen by more than 31,100% (as of August 16). This means that an investment of $10,000 in August 2004 would be worth $3.1 million today. That is a much better return than the S&P500 or Nasdaq-Composite Index.

Let’s take a look at Netflix’s monumental rise before finding out if the stock is a smart investment today.

Netflix is ​​a category creator

There are very few companies that have become so powerful by creating a new market. Netflix deserves credit for leading the streaming movement and helping to accelerate the demise of cable television.

The company first launched its service in 2007. Since then, it has been able to rapidly increase its revenue and subscriber base. Over the last decade, revenues have grown by about 640%. It would be difficult to find companies with such expansion.

Initially, Netflix was seen by consumers as a far better solution than the traditional cable TV package. People could watch all the shows and movies they wanted, when they wanted, and as often as they wanted. Time was no longer a constraint on television. This made Netflix the global media giant it is today.

In the streaming industry, size is everything. Netflix has become the dominant player in the market thanks to its first-mover advantage. The company has 278 million subscribers and generated over $36 billion in revenue over the last twelve months, allowing the company to spend about $17 billion in cash on content while being extremely profitable.

Netflix is ​​expected to report an operating margin of 26% this year, a huge improvement from 14% five years earlier in 2019. This is a clear sign of a scalable business model. Fixed expenses, mainly for content, are better utilized as revenues grow over time.

And thanks to its ability to generate billions in free cash flow every year, Netflix is ​​now financially very solid. Management even leads Share buybacks to return capital to investors.

The future of Netflix

Netflix may have been a fantastic investment in the past, but investors should look at the current situation with a new perspective. To be clear, this is a more mature company, so growth will likely slow in the coming years.

Management estimates that there are still 500 million smart TV households that are not currently Netflix customers. While this is a huge addressable marketit won’t necessarily be that easy to win them over. These people will probably need more convincing to sign up for a Netflix membership than the early streaming adopters.

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However, Netflix is ​​testing new waters to fuel growth. In recent years, the company has entered mobile gaming, introduced an advertising tier, and cracked down on password sharing. It has also finally entered the live entertainment space, deals with Technical KO and the NFL show it clearly. I expect the company to acquire more professional sports rights in the coming years.

These recent initiatives are necessary because the industry has never been more competitive than it is today. There are so many companies all vying for consumers’ attention, so it only makes sense that Netflix is ​​doing everything it can to stand out. The environment today is more challenging, to say the least, than it was a decade or more ago.

At the time of writing, Netflix shares are trading at a Price-earnings ratio of 43. I believe future returns will not resemble those of the past, but investors who care less about value than quality may want to consider adding the stock to their portfolio.

Should you invest $1,000 in Netflix now?

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Neil Patel and his clients do not own any stocks mentioned. The Motley Fool owns shares of Netflix and recommends it. The Motley Fool recommends TKO Group Holdings. The Motley Fool has a disclosure policy.

1 spectacular stock that turned $10,000 into $3.1 million in 20 years was originally published by The Motley Fool