Considering a Skeptic's Perspective on Netflix's Growth: Reasons to Consider Investing in the Streaming Giant in 2025.
Netflix's Resurgence:
In the 2010s, Netflix shined as one of the decade's top-performing stocks. After a hiccup with Qwikster, Netflix masterfully transformed from a DVD-by-mail service to a streaming giant, boasting phenomenal growth. However, the 2020s ushered in new challenges with competing streaming platforms surging and the pandemic-fueled growth plateauing. Despite this, purchasing Netflix post-Q1 2022 subscriber decline would net you more than 400% if recent gains hold.
Despite being overlooked by growth investors, deflecting to the "Magnificent Seven" stocks and AI boom, Netflix demonstrated its enduring growth story. That stance was dramatically supported when its shares surged 13% following the fourth-quarter earnings release. Let's dissect the highlights of this period before diving into why Netflix is a 2025 must-have stock.
Smashing Expectations
Recognizing the need to get back on track, Netflix explored various strategies to stimulate growth. It embraced advertising, introducing a more cost-effective tier. Cracking down on password sharing with the paid sharing program paid off. And, pushing the envelope further, Netflix began experimenting with live events, such as the Mike Tyson-Jake Paul fight in November and two NFL games on Christmas Day.
These initiatives proved successful, propelling Netflix's growth. In the fourth quarter, the company added a remarkable 18.9 million subscribers, upending the 9.2 million analysts anticipated, marking a new single-quarter record. Revenue swelled 16% to $10.2 billion, outpacing the $10.1 billion analysis. Operating margin upped from 16.9% to 22.2%, and earnings per share (EPS) nearly doubled to $4.27, topping the consensus at $4.20.
Management revealed that Q4 content surpassed expectations, as the Paul-Tyson fight became the most-streamed sporting event ever, and the NFL Christmas Day games shattered records for most-streamed NFL games in history.
A Wide Economic Moat
In anticipating 2025, Netflix expects steady growth, allocating 14% to 17% currency-neutral revenue expansion. Given the subscription nature of its model, earnings should also significantly increase as content spending slightly escalates from $17 billion to $18 billion in cash. Management also plans to raise prices, including ad tier fees, enhancing profitability.
Beneath the surface, Netflix's longevity as a must-own growth stock stems from several avenues. Firstly, the company leads the storming streaming sector, reporting exceptional subscriber growth while peers stagnate. Secondly, Netflix optimizes its newest revenue streams, such as advertising, which it aims to significantly augment.
Live events is another massive untapped opportunity for Netflix. Distinctively, its platform can reach 300 million viewers directly, captivating various sports leagues and live events searching for audiences.
Adventurously, Netflix is pushing into the video game landscape. It’s heading in the right direction; for instance, the Squid Game-themed game topped the free game category on Apple’s App Store. Netflix plans to distribute its games across multiple platforms, not just mobile.
Netflix in 2025
Beyond these avenues, Netflix maintains other growth prospects, such as product licensing. Moreover, Netflix has exhibited strong subscriber expansion in all four regions, adding more than 4 million subscribers per quarter, illustrating rapid global development. Fittingly, the stock remains affordable at a price-to-earnings ratio of 50 given its momentum.
Following a spectacular 2024, Netflix appears poised for another outstanding year in 2025, cementing its commanding position in the streaming domain for many years to come.
After a successful Q4 with record-breaking subscriber growth and revenue, Netflix announced plans to increase prices and allocate more funds to content, expecting continued earnings growth in 2025. Leveraging its position as a leader in the streaming industry, Netflix also aims to expand into new revenue streams, such as advertising and video games, further bolstering its finance and investing potential.
