Why Netflix's Operating Margins Have Big Upside

Netflix (NASDAQ: NFLX) is modestly profitable today but should be extremely profitable in the future. The company has increased its operating margin -- operating income as a percentage of revenue -- by about 3 percentage points each year since 2016, and management expects it to reach 16% next year.

When revenue is growing quickly and margins are rising, profits tend to grow very quickly. I believe the current trend should continue over the long term despite the recent increase in streaming video competition.

Data source: Netflix. Chart by author. E = company estimate.

Source Fool.com