Netflix Stock Soars: What’s Next for Investors?
Netflix (NASDAQ: NFLX) reached a record high on Tuesday, with shares climbing 68% in 2024 alone. The stock has nearly tripled since the beginning of last year.
Investors are pleased with this performance. However, Netflix’s subscriber numbers and revenue have not experienced the same rapid growth—just 178% since early 2023. Context is crucial: just 17% stock growth has occurred since Netflix first crossed the $700 mark three Novembers ago. Over the past three years, the business’s improvement has been significant, likely exceeding that 17% figure.
As the stock continues to rise, the question remains: Can Netflix maintain this momentum in 2025? Let’s delve into what Netflix needs to do to keep achieving record highs in the coming year.
Strong Financials to Watch
Last month’s impressive financial report resulted in a surge in share prices. Revenue for the third quarter increased by 15% to $9.8 billion, largely due to a 14% rise in subscriber numbers. Subscribers in the U.S. and Canada are paying an average of 5% more for their memberships compared to last year.
On the profit side, Netflix experienced an even better performance. Rising margins contributed to a 52% increase in operating margin and a 45% boost in earnings per share. Both figures surpassed Netflix’s own forecasts, which anticipated 14% revenue growth and a 33% rise in net income.
Looking ahead, Netflix expects revenue to grow by 15% in both the current quarter and throughout 2024. This marks a significant shift from two previous years of slower revenue growth. While Netflix anticipates a slight decrease in revenue growth to between 11% and 13% in 2025, it expects its operating margin to widen, indicating continued profitability despite a slowdown in revenue growth.
Image source: Getty Images.
Staying Ahead of the Competition
Some might consider Netflix’s stock expensive, trading at 35 times next year’s earnings forecast. Yet, comparing this to last year’s trade at just 12 times its 2025 earnings estimates shows how much Wall Street’s outlook has shifted.
A significant change at Netflix came two years ago with the introduction of a lower-cost ad-supported plan. This initiative has proven successful. It gives budget-conscious viewers a more affordable option, while also attracting advertisers looking to reach a broader audience. According to Amy Reinhard, Netflix’s head of advertising, half of new subscribers in regions with the ad-supported option have chosen this tier. Currently, 70 million of Netflix’s 283 million paid subscribers are utilizing ad-supported plans—a notable achievement for a product launched only two years ago.
Another recent initiative is cracking down on password sharing. Netflix began this process last year in various markets, requiring an additional $8 per month for access by remote viewers. Since implementing the ad-supported tier and the crackdown on password sharing, Netflix has seen an uptick in both its user numbers and profitability.
Starting next year, Netflix plans to stop reporting quarterly subscriber counts. While this change may raise concerns, it reflects a shift in strategy with new tiers and monetization efforts across 190 countries. Investors are encouraged to focus on revenue and earnings growth rather than subscriber numbers, which has been the case for other investments.
While a tripling of shares is unlikely in the next two years, Netflix still has the potential to outperform the market in 2025. As the leading streaming service, the company has a remarkable track record of evolution and adaptation. Betting against such an adaptable company can be unwise.
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Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
