Netflix or Tesla: Which Disruptive Giant Deserves a Place in the ‘Magnificent Seven’?
Tesla: EV Growth Hits Roadblocks
Tesla’s journey from a niche electric car manufacturer to an automotive powerhouse has been nothing short of extraordinary, propelling the company to a market cap that currently stands at $789 billion. Tesla’s growth over the past decade has made it one of the most valuable companies globally, backed by CEO Elon Musk’s visionary leadership.
However, recent trends show Tesla facing significant headwinds. Revenue growth slowed to 18.8% in 2023, a stark contrast to previous years, and revenue grew just 0.5% over the first three quarters of the year. Higher interest rates are cooling consumer demand for EVs, making Tesla’s growth look more in line with traditional automakers than an unstoppable tech powerhouse. To stimulate demand, Tesla has introduced several rounds of price cuts, yet faces increasing competition from both domestic and Chinese EV players.
This shift is evident in Tesla’s Q3 2024 operating margin, which dipped to 10.8%—significantly lower than the 17.2% it achieved two years prior. As Tesla’s fundamentals weaken, the stock has fallen 39% from its peak in November 2021, signaling that it may no longer hold the growth potential it once did.
Netflix: Streaming Forward with Strong Momentum
After a rough patch in early 2022, during which Netflix lost 1.2 million subscribers in just six months, the streaming giant has bounced back. As of September 30, Netflix boasted 282.7 million subscribers—a 14.4% year-over-year increase. This subscriber growth fueled a 15% revenue rise to nearly $10 billion for the quarter, showcasing Netflix’s ability to recover and grow despite competition.
Netflix’s impact on the entertainment industry is unparalleled, setting off the cord-cutting trend and effectively pioneering the subscription-based streaming model. Today, Netflix remains the clear leader in a crowded streaming market. With its vast content library and global presence, Netflix enjoys economies of scale that many competitors struggle to match. For 2024, Netflix is expected to generate between $6 billion and $6.5 billion in free cash flow, reflecting a business model that has achieved consistent profitability.
Even Netflix CFO Spencer Neumann sees untapped growth potential, with millions of households yet to subscribe. This suggests that Netflix’s growth story is far from over.
Market Perspective: Does Netflix Belong in the Magnificent Seven?
Tesla’s current market cap of $789 billion still dwarfs Netflix’s $323 billion, demonstrating the market’s ongoing preference for Tesla. However, the EV stock’s premium valuation, trading at a 69 price-to-earnings (P/E) ratio, contrasts with Netflix’s more sustainable 43 P/E. Netflix’s recent resurgence, bolstered by robust growth and free cash flow generation, seems to make a stronger case for inclusion in the Magnificent Seven over Tesla, whose reliance on speculative promises like autonomous driving and global robotaxi networks has yet to fully materialize.
As both companies continue to shape their industries, Netflix may very well prove to be the better buy for investors today, possibly earning its spot in the Magnificent Seven.
