Is Netflix a Buy, Sell, or Hold in 2025?

Netflix's stock has surged nearly 70% in the past year, making it one of the most watched companies in the market. Let's analyze its latest earnings and future outlook to determine whether Netflix stock is a buy, sell, or hold for 2025.

Recent Earnings Report

Recently, Netflix (NFLX) announced its fourth quarter earnings for 2024, and it was a significant success. The company surpassed 300 million subscribers and brought in over $10 billion in revenue for the first time. With such impressive milestones, the stock has reached near all-time highs.

Netflix Continues to Lead the Streaming Market

In 2024, Netflix confirmed its leadership position in the streaming industry, closing the year with approximately 301.6 million memberships. This marks a strong 16% increase compared to the previous year. In terms of revenue, Netflix generated $39 billion, also reflecting a healthy 16% year-over-year growth. Free cash flow remained impressive at $6.9 billion, consistent with the previous year.

While other streaming services don't always disclose their subscriber counts, data from FlixPatrol indicates that Netflix is ahead of its main competitors: Amazon Prime, which has 200 million subscribers, and Disney+ with 123 million subscribers.

Netflix is actively using its substantial free cash flow to reward its investors through share repurchases. Over the past two years, the company has spent around $12.2 billion on buybacks, effectively reducing its total shares by nearly 4%.

Future Projections for Netflix in 2025

Looking ahead to 2025, Netflix's management anticipates revenue between $43.5 billion and $44.5 billion, a potential growth of 11.5% to 14.1% compared to the previous year. They also expect the operating margin to improve, reaching 29%, up from 27.4% in 2024. These optimistic projections suggest that management has a positive outlook on future operations.

Additionally, Netflix is exploring new ventures, including live events. Recently, they broadcasted two NFL games, attracting around 30 to 31 million viewers each. They also featured the premiere of WWE's Raw, which drew 5 million viewers. Netflix plans to continue airing Christmas Day NFL games for the upcoming two years and has secured a 10-year, $5 billion deal with WWE. This includes a commitment to provide consistent programming.

Management views the live events segment as essential for future growth. This strategy not only aims to attract new users but also enhances advertising revenue opportunities. As more users sign up for the ad-supported tier, Netflix can offer various price points without sacrificing total revenue.

Netflix has indicated that 55% of new members opted for the ad-supported plan when it was available, showcasing a promising trend ahead. Furthermore, price increases were recently announced, with the standard plan rising by $2.50 and the ad-supported plan by $1. These changes reflect the company's ability to adapt and keep generating revenue.

Valuation Concerns

Despite the positive growth prospects, several investors express concern about Netflix's current stock valuation. The stock trades at approximately 61.7 times its free cash flow, marking a peak for the past year. Even when considering projected free cash flow for 2025 of around $8 billion, the stock still trades at 52 times that number. This valuation suggests the need for continuing strong growth to justify its current price.

Conclusion on Netflix Stock

For long-term investors, Netflix presents itself as a compelling option to hold. The company's successful growth strategy, increasing subscriber base, and enhanced advertising opportunities position it well for the future. Nonetheless, its current high valuation introduces risks. Potential investors may find it wise to wait for a market correction or adopt a dollar-cost averaging strategy to mitigate risk.

Netflix, Investing, Stock