Shares of Netflix(NASDAQ: NFLX) soared almost 800% over the last decade, likely creating life-changing wealth for some shareholders. And this strong stock price performance was arguably primarily driven by impeccable performance on two key metrics: revenue and operating margin.
While the company’s still small yet fast-growing advertising business, steady membership growth, and occasional price increases should help the streaming pioneer keep growing its top line over time, there’s less certainty about its ability to keep expanding its operating margin. For now, the company continues to forecast operating margin growth. But can the key profitability metric keep expanding steadily over the next decade, as it did over the last decade, or could it eventually max out given the intensely competitive entertainment landscape?
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A closer look at how the company has expanded its annual operating margin recently reveals a business that continues to find ways to squeeze more profit out of its model — but how long can Netflix keep this up?
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If Netflix‘s operating margin expansion in the future looks anything like it has in the past, the stock could soar.
After achieving a 20.9% operating margin in 2021, the metric dipped to 17.8% in 2022. From here, however, the metric has moved aggressively upward, rising from 17.8% in 2022 to 20.6% in 2023, and then to 26.7% in 2024. Last year, it improved further to 29.5%.
And the momentum hasn’t stopped. In its most recent quarterly update last week, Netflix reported a first-quarter 2026 operating margin of 32.3% — an expansion from 31.7% in the year-ago period.
“We aim to grow content spend slower than revenue so that it contributes to our margin expansion,” Netflix chief financial officer Spencer Neumann said during the company’s fourth-quarter earnings call earlier this year. In other words, Netflix expects to continue growing its content spend, just at a slower rate than revenue. This dynamic provides a clear roadmap for how the company plans to keep widening its profitability without starving its platform of fresh series and films.
“We still see plenty of room to increase our margins and our intent is to grow our operating margin each year,” management added in its fourth-quarter shareholder letter, “although the magnitude of margin expansion will vary year-to-year as we balance reinvesting in our business with improving profitability.”
And the company’s guidance for a 31.5% operating margin in 2026 suggests the broader trajectory remains intact.
Further, the company’s advertising business could act as an important catalyst. While Netflix doesn’t break out the profit margins of its advertising business, it will likely be a higher-margin revenue stream than its core subscription business over time. Today, the business is still small, with management expecting just $3 billion in advertising revenue this year, but it is growing extremely fast (management says $3 billion would represent approximately double 2025 levels). As this business grows, it could contribute nicely to Netflix’s overall operating margin.
While it seems likely that Netflix’s operating margin can expand meaningfully from here, particularly over the next few years, there’s less certainty about how it will fare over the longer term.
With that said, if the key profitability metric can keep expanding significantly not just over the next few years but over the next decade, and the company keeps growing its revenue at double-digit rates while it’s at it, this could be exactly what the stock needs to be able to live up to its premium valuation of more than 31 times earnings as of this writing.
A valuation multiple like this essentially bakes in both double-digit revenue growth and exceptional margin expansion for years to come.
If anything derails this margin expansion, shares could suffer. For instance, if the intensely competitive streaming market forces Netflix to spend more than expected on content to keep its membership base engaged (weighing on Netflix’s operating margin), the stock could underperform.
On the other hand, if Netflix’s operating margin steadily expands over the long haul, that probably means revenue has continued to grow rapidly, too — and strong revenue growth is one of the key inputs to Netflix’s operating leverage. With that said, if Netflix’s operating margin expands not just over the next few years but also over the next decade, the stock could soar.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
