Netflix Inc. (NFLX:NASDAQ)

Last update - 22 January 2025 By James Woods

Netflix is an American subscription video on-demand over-the-top streaming service. The service primarily distributes original and acquired films and television shows from various genres, and it is available internationally in multiple languages.

Netflix Inc. delivered a record-breaking fourth quarter, adding 18.9 million subscribers—more than double the consensus estimate—and bringing its global membership to over 302 million. This surge in new users highlights the success of its diverse content slate, including live sporting events, hit shows like Squid Game, and strategic moves like the crackdown on password sharing. It marked Netflix’s best subscriber growth since the early days of the pandemic in 2020, underlining its ability to adapt and innovate in a highly competitive market.

Revenue for the quarter reached $10.25 billion, up 16% year-on-year, slightly beating analyst projections. Earnings per share rose to $4.27, surpassing expectations of $4.18, while operating income surged 52% to $2.27 billion. Margins expanded to 22.2% from 16.9% a year earlier, reflecting the company’s increased operational efficiency. Although free cash flow fell 13% year-on-year to $1.38 billion, it still exceeded forecasts, bolstered by the company’s strategic pricing and content initiatives.

Netflix projects 12-14% revenue growth for 2025, driven by global price hikes across its subscription tiers and a strong content lineup. Operating margins are expected to rise to 29%, up from the 27% recorded in 2024, underpinned by the company’s ability to capitalise on pricing power and monetise its content. The company has authorised an additional $15 billion share buyback, signalling confidence in its long-term growth and shareholder value strategy.

The company’s expansion into live events has emerged as a game-changer, drawing significant viewership and enhancing its advertising business. With live programming, including sports and entertainment events, Netflix aims to deliver outsized value to members while building a scalable advertising platform. Although the ad business is still in its early stages, it is projected to contribute meaningfully by 2026.

While first-quarter guidance of $10.42 billion in revenue and $5.58 per share in earnings fell slightly below Wall Street expectations, the company remains optimistic about its trajectory. Netflix’s continued focus on profitability, exemplified by its forecast of $8 billion in free cash flow for 2025, underscores its ability to balance growth with financial discipline.

Although not currently included in any model portfolios, Netflix has been in the Rivkin portfolios several times, and is a stock of interest for its impressive subscriber growth, strong pricing power, and expanding revenue streams.

Netflix’s outlook appears bullish, driven by strong fundamentals and strategic initiatives that position the company for sustained growth. The record-breaking subscriber additions in the fourth quarter and successful adoption of price hikes reflect robust consumer demand and pricing power. Furthermore, the company’s pivot toward live programming and its focus on building an advertising platform add promising new revenue streams. Margins are expected to expand in 2025, supported by operational efficiency and high operating leverage.

While first-quarter guidance slightly missed expectations, the long-term prospects remain strong, with projected free cash flow of $8 billion and revenue growth of up to 14%. The authorised $15 billion buyback also reinforces confidence in its financial health. However, risks tied to competitive pressures and evolving consumer behaviours should not be overlooked. Overall, Netflix’s ability to execute its strategies effectively makes the stock an attractive prospect for growth-focused investors, supporting a bullish stance.

 

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