The winning streak continued into 2025, with stocks adding over 7.59% in value through January 23. Analysts and market watchers expect the stock to deliver similar results in the coming months, as the company announced a colorful range of new content, and further enacted price increases across several regions, including Canada and the U.S.
The recent announcements have delighted investors. The stocks' winning streak is steadily entering its third year, with shares having doubled in price since 2023, and surpassing its previous peak of $690.31 per share recorded in 2022. After the impressive delivery, could the robust outlook persuade investors to buy Netflix before the stock advances?
The recent fourth quarter 2024 results are at the core of current forward-looking momentum. Across the board, the company reported better-than-expected financial results, new membership subscriptions, and steady revenue growth for its ad-supported business.
Robust quarterly revenue was largely supported by stronger membership demand, coupled with an overall increase in live-action streaming. For one, the release of the long-awaited Squid Game Season 2 was the platform's most-watched original series, while Carry-On quickly rose to become one of the Top 10 most-watched films on the platform.
Bigger investments in live-streaming events have already started to pay off. For Q4, the company reported a 52% year-over-year increase in operating income, which was largely supported by the addition of 19 million new subscriptions. Netflix ended 2024 with over 302 million paid members, however, Q4 will be the last quarter that the company reports on membership growth.
In addition, net operating income rose 22.2% to $2.27 billion, and the company set a Q1 2025 forecast estimate of $2.94 billion, equivalent to a 28.2% increase.
Better quality live-streaming content, including the Jake Paul vs. Mike Tyson fight, is one of the most streamed sporting events on the platform, attracting 65 million streams. Christmas Day NFL games - one featuring Beyonce's halftime performance - averaged 30 million views, making it one of the league's most-watched events.
Delays caused by the pandemic, strikes, and a series of unplanned natural events have created a backlog in new content. However, with this now in the rearview, Netflix plans to roll out a handful of new shows this year, most notably Wednesday and Stranger Things.
Investing in live-streaming events, including WWE's Monday Night Raw is a strategic move that would provide Netflix with increased streaming demand, and in return further boost the company's ad-supported business.
Netflix continues to see an overwhelming success for its ad-supported streaming membership. Though this membership is not available in all countries, those with ad-supported options have seen a 55% increase in new sign-ups for ad-supported streaming tiers.
The company noted a steady increase in ad-supported plans throughout Q3 and Q4 last year, with a 35% quarter-over-quarter jump in new memberships. Notably, ad revenue had doubled in 2024, and the company projected that a similar trend could take place in 2025.
In January, Netflix announced price increases across its range of service offerings, including low-cost and premium subscription tiers. Price increases will be in effect in Argentina, Canada, Portugal, and the U.S.
The decision to increase prices follows a strong demand for basic and premium Netflix streaming services. In the U.S., ad-supported subscriptions will go up from $6.99 to $7.99, while more premium subscription packages will rise to $24.99
Despite the price increase, ad-supported subscriptions continue to dominate the company's forward-looking guidance as Netflix aims to increase its ad-related revenue in the coming quarters.
Ad-related revenue has been a strong driving force for many tech-based consumer companies, including the likes of Facebook-parent company Meta Platforms (META), and Pinterest (PINS), among others. The onset of more users leveraging social media as a search engine could be a strong contributing factor for ad-supported content on social media and streaming platforms.
In one survey, a robust 61% of Gen Z respondents said that they use social media more for search engine purposes. Similarly, 62 percent of millennials and 58 percent of those aged 43-58 years old have said that they prefer using social media for search-related queries. Consumers, across most demographics, favor these outlets due to a high concentration of bite-sized content, high-quality visuals, and authentic content.
Whether subscribers pay for streaming services with or without ads, Netflix will continue to solidify its position as a high-quality content streaming service, while looking at ways to further diversify its revenue, and boost new subscriptions.
Strong market execution of its business strategies is central to Netflix's forward-looking growth projections. For starters, the company's password-sharing crackdown announcement has significantly aided in the surge of new members' subscriptions over the last few quarters. Analysts suggest that the company might have passed this peak, though Netflix could maintain mid-range customer growth in 2025, and likely see stronger demand for its lower-priced subscription options.
Secondly, better market penetration will provide the company with a wider operational cash moat. New opportunities in the Middle East and Africa will create additional revenue in advertising and streaming. Along with this, price increases in the U.S., Canada, Portugal and Argentina will provide substantial growth, but will moderate around the fourth quarter.
Considering that the company does not have any legacy assets puts them ahead of market competitors. The company has pioneered on-demand streaming services, meaning that as consumers transitioned from traditional viewing to streaming, Netflix already had the network and services to support stronger demand. This has helped keep them ahead of competitors, minimizing costs and pushing them past the initial cash burning phase.
NFLX delivered 83% in annualized performance, more than double that of the broader benchmark S&P 500's 24% and the tech-heavy Nasdaq's 30% performance last year. The company expects to see a similar performance delivery in 2025, with a strong focus on boosting revenue by 11.2% to $10.41 billion in Q1.
Improved foreign exchange rates and the strengthening of the U.S. dollar have boosted the company's revenue forecasting outlook. For 2025, management expects revenue of $43.5 0 $44.5 billion, which is half a billion dollars more than their previous forecast. A key to this success would be attributable to a 29% operating margin, an increase of one basis point from their previous forecast.
The transition into advertising will bring improved profitability, further boosting the company's stock appreciation which broke past the $1,000 per share milestone halfway through February. Stocks recorded a peak of $1,058.60 on February 14, before starting to slide back down.
Improved margins would bolster share appreciation near the end of the year as the company looks to be well-positioned to maintain a positive momentum despite wider uncertainties rippling through the market.
The company's valuation metrics show a Pay-to-Earnings (P/E) ratio of 53.98, with a forward P/E of 38.75. Additionally, P/E Growth (PEG) is modest at 1.66, with a return on assets value of 14.88%, which currently outperforms approximately 95.45% of the companies in the same industry.
Investors have found these performance metrics to be highly attractive. The current consensus of NFLX is Buy, with 31 analysts covering the stock forecasting an earnings-per-share (EPS) growth rate of 25.05% in the next five years. This consensus is based on the projection of a five-year revenue growth forecast of 11.64%.
Trading signals of the stock have been largely mixed in the first quarter of the year as several Guru analysts of NFLX including the likes of Joel Greenblett of Gotham Asset Management and Mario Gabelli (Trades, Portfolio) from GAMCO Investors reduced their stake in the company.
Greenblett reduced his holdings by more than 30% near the end of last year, with Gabelli shedding 4.88% of his NFLX holdings. The reduction came ahead of the company's better-than-expected Q4 earnings. The company is standing at a turning point in its growth projection as new content line-ups and collaborations will help play in favor of the company's shifting approach to harness market share as consumer behavior changes.
Increased spending on new content, including high-quality productions and various live streaming events could help deliver stronger viewer demand in the coming year, but the company will need to provide this at an attractive price point that suits consumer budgets. Over the long-term guidance, Netflix will need to continue strong funding in new streaming content to maintain its market position, and stay ahead of competitors.
Netflix is currently the top investor in terms of global streaming content, averaging at $14.5 billion in annual spending. However, content spending this year could be boosted through the acquisition of sports rights for NFL games, and the 52-weeks of WWE's Monday Night Raw.
The company could leverage its position in international markets, including non-U.S. originating programming, which accounts for 52% of its content spending, higher than Paramount+'s 40%. International programming helps to attract niche audiences to subscribe to the platform, and is effectively cheaper to produce.
There's still plenty of room for the company to expand in terms of international programming, and this could be a key driver for the upcoming year. The company estimates that there are now more than 750 million broadband households, globally, excluding China and Russia. In total, Netflix captures only 6% of the $650 billion entertainment market. Additionally, the company projects that they account for less than 10% of TV viewing in all countries in which it operates.
By this measure, the company still has a long runway for growth both in terms of on-demand streaming and live streaming. Though there's still plenty of opportunity to expand in all of its operating regions, stronger financial investment in content production would be key to unlocking this long-term potential.
Netflix has come up with a strategy that allows the company to monetize its basic service features while asking a premium for higher-tier subscription services. Ad-supported services will remain a highly profitable side of the business and will allow them to explore more product options in the near term.
The company is running at full speed, and the writing is on the wallNetflix does have the financial capacity to continue churning out high-quality content while further expanding its live television offerings. Though the company might experience a drawdown in new subscription sign-ups, there are still penetration opportunities available in foreign markets.
The ad-supported slate will remain a strategic service offering for the company in terms of increasing its revenue cash availability moat. However, a bearish sentiment could see the company having to make more strategic price adjustment decisions to ensure ad-supported and high-tiered subscriptions do not outpace household budgets in the coming years and could limit growth on its streaming front.
Considering how the market for on-demand streaming services has changed over the last few years, and seeing a handful of new contenders stepping up their game, Netflix remains in a strong position to outpace its market peers and continue to grow in international markets where local programming has already shown some promising results.
By this caliber, Netflix holds a Buy rating, showing significant long-term growth and the capacity to increase spending to create high-quality content, boost its cash moat through ad-supported revenue growth, and remain a pioneer in on-demand streaming while further diversifying its program offerings and adding new live-streaming events.
Full Disclosure: I have no position in Netflix.
This article first appeared on GuruFocus.
