Netflix Set to Report Earnings: Key Factors for Sustained Growth

On Thursday, Netflix (NASDAQ: NFLX) will kick off the second earnings season of 2025, becoming one of the first nonfinancial companies to report its results. The stock has performed exceptionally well, outperforming the S&P 500 so far this year and soaring 83.1% in 2024.

Here are three reasons Netflix is poised to maintain its momentum and could be a solid growth investment.

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1. A Tariff-Resistant Business Model

Despite a recent pullback following a wider market decline, Netflix remains up 8.8% YTD at the time of this writing. This is in stark contrast to the communications sector, S&P 500, and Nasdaq Composite, all of which are currently down.

NFLX data by YCharts.

Netflix’s business model, which relies primarily on subscriptions rather than goods exports, shields it from tariffs. However, it can still feel the impact of economic cycles and fluctuations in consumer spending.

International growth significantly contributes to its success, with about 60% of revenue generated in currencies other than the U.S. dollar. In the latest fiscal 2024 fourth quarter, revenue growth in the U.S. and Canada (UCAN) was a modest 6.9% year-over-year, while Latin America (LATAM) grew by 5.6%. In comparison, the Europe, Middle East, and Africa (EMEA) segment saw a notable increase of 11.9%. The star performer was the Asia Pacific (APAC) region, which achieved an impressive 18.5% growth rate.

It’s crucial to note that average revenue per user is significantly higher in the U.S. and Canada, standing at $17.26 compared to $11.11 in EMEA, $8 in LATAM, and just $7.34 in APAC. Currently, paid members in the U.S. and Canada account for less than 30% of the total, highlighting the importance of expanding international memberships and optimizing revenue per subscriber.

2. High-Margin Content Distribution

Netflix’s growth hinges on its ability to provide high-quality content worldwide. To maintain viewer engagement, the company must strike a balance between the quantity and quality of its streaming selections, which include both original productions and licensed content.

The company has effectively created compelling content across various genres while achieving significant hits. In the last quarter, it drew in subscribers by streaming two NFL games on Christmas Day, alongside a boxing match featuring Jake Paul and Mike Tyson.

During its fourth-quarter earnings call for fiscal 2024, management noted that while some users were initially attracted by the sports events, they remained for the highly anticipated new and returning TV shows. Netflix has historically faced challenges with password sharing and users binge-watching content, which often leads to cancellations. However, a consistent offering of engaging content across key segments mitigates this risk, as evidenced by positive subscription trends.

NFLX data by YCharts; TTM = trailing 12 months.

By effectively managing its costs and maximizing content usage, Netflix has steadily increased both revenue and operational margins. Investors may mistakenly overemphasize revenue per subscriber, overlooking the overall impact of successful show production. The company, which was once heavily reliant on North America, now leverages the international market, allowing popular shows to have a far-reaching impact.

Producing regional shows can yield unexpected global hits—as exemplified by the South Korean series Squid Games, which evolved from a local favorite to an international phenomenon.

The essence of Netflix’s business model lies in the constant potential for a new hit series. As content evolves into franchises with multiyear success, the company capitalizes on its global reach effectively.

3. Pricing Power

A strong content library enhances Netflix’s pricing power. Over the years, the company has repeatedly raised subscription prices, with the latest increase rolled out last quarter, which also phased out the low-priced Basic tier in favor of ad-supported options that offer lower-cost access to content. In markets where ads are available, over 55% of new sign-ups were attributed to these ad plans.

This ad-driven approach suggests that a singular focus on revenue per subscriber could be misleading. While international growth may lean on advertising, if it effectively increases engagement with existing shows, it constitutes a significant win for Netflix.

As first-quarter fiscal 2025 earnings are expected to be announced on April 17, Netflix is guiding for revenue of $10.416 billion, representing an 11.2% year-over-year increase, with an operating margin of 28.2% and diluted earnings per share of $5.58, reflecting a 5.7% rise.

The 2025 content lineup and the audience’s response to price adjustments since the hike will be critical to watch, along with management’s perspective on how potential economic slowdowns may impact consumer spending.

A Top Growth Stock for Long-Term Investors

Historically, Netflix has outperformed the market and is now in a strong position to continue this trend. With a clear strategy for consistent, high-margin revenue growth, coupled with international expansion and successful ad tiers, the company presents multiple avenues for increasing viewership and optimizing content profitability.

Although Netflix stock trades at 47 times earnings, with a price-to-sales ratio of 37.5, the potential for continued success remains.