This NFLX Stock Forecast article was written by Miles Grauberd – Financial Analyst at I Know First.

Highlights

• Netflix achieved 24.18% net margin in Q3 of 2024
• NFLX EPS achieved 5.40 EPS in Q3 of 2024 but expected to drop an EPS of 4.20 in the next quarter.
• Total annual Revenue hit $33.7 billion and expected to reach $38.91 billion total revenue in 2024. 
• Netflix Stock is up 70.5% since January 1st.

Overview

In recent years, Netflix has firmly established itself as a powerhouse in the global streaming landscape, reshaping the way audiences engage with entertainment. With a staggering subscriber base exceeding 230 million across more than 190 countries, the company has demonstrated remarkable resilience and adaptability in the face of evolving market dynamics and fierce competition. An examination of Netflix’s performance metrics reveals a compelling narrative of revenue growth, profitability, and market valuation. By analyzing key financial indicators alongside industry trends, insights emerge into Netflix’s operational effectiveness, investment viability, and strategic initiatives. Ultimately, this exploration assesses Netflix’s competitive positioning and future potential in the ever-evolving realm of digital content consumption.

Key Financials for Netflix

In the third quarter of 2024, Netflix reported revenue of $9.82 billion, marking a 2.72% increase from the previous quarter and exceeding analysts’ expectations of $9.77 billion. This strong performance translated into a net profit of $2.36 billion, resulting in earnings per share (EPS) of $5.40, surpassing the projected EPS of $5.12. However for Q4, Netflix’s EPS is expected to drop significantly to $4.20 while their revenue is still projected to grow. 

Netflix also achieved a record 282.7 million subscribers globally, reflecting a significant 14.4% increase year-over-year. Notably, revenue growth was evident across major markets, underscoring the company’s robust international presence.

Additionally, while revenue from DVD rentals fell sharply by 43.15%, decreasing from $145 million to $82 million, streaming revenue continued to thrive, increasing by over $2 billion—a 6.90% rise from 2022 to 2023. This trend highlights that streaming remains Netflix’s primary revenue driver, demonstrating continued growth and resilience in a competitive landscape.

Netflix Revenue by Region: 

Netflix’s Infamous Password Crackdown – Has it Helped?

In May 2019, Netflix implemented a crackdown on password sharing, a move aimed at addressing the widespread practice of users sharing their subscriptions with friends and family. This practice significantly impacted Netflix’s potential revenue, as multiple individuals were accessing the service with a single account. By enforcing stricter measures against password sharing, Netflix aimed to boost its revenue and reinforce its position as the premier streaming service. The policy, however, allows for shared accounts within a single household, recognizing that families can collectively use one subscription. Ultimately, Netflix’s strategy is focused on curbing sharing across different households to enhance profitability and ensure sustainable growth in a competitive market.

Since Netflix implemented its crackdown on password sharing, the company has seen significant financial gains. In the first quarter following the policy change, Netflix added 9.3 million new subscribers, while net income surged to $2.33 billion. As a result, Netflix’s stock price has more than doubled, reflecting the positive impact of the password-sharing crackdown on both revenue and subscriber growth. With these strong financial results and the stock price soaring, it’s clear that the strategy has been effective in boosting Netflix’s bottom line and solidifying its market position.

Netflix vs. Disney+ vs. Amazon Prime Video – A Battle of Giants

Since the “streaming wars” began in 2019, Netflix has faced growing competition, particularly from Disney+ and Amazon Prime Video. In response, Netflix has significantly ramped up its investment in original content and high-profile talent to maintain its position as the market leader. The launch of Disney+ in late 2019, in particular, forced Netflix to accelerate its spending, pouring billions into exclusive shows and movies. This move set off a chain reaction, prompting its competitors to follow suit as they all competed for market share. As the streaming landscape continues to evolve, it’s becoming clearer who is truly dominating the industry.

The three major streaming platforms—Netflix, Disney+, and Amazon Prime Video—offer distinct content that caters to different audiences. Netflix is known for its broad variety and global reach, offering a wide array of shows and movies to suit nearly every taste. Currently, Netflix holds a 21% market share in the U.S. and reported a 40.9% year-over-year (YoY) increase in net income for Q3, along with a 45.3% rise in earnings per share (EPS), which reached $5.40.

Disney+, on the other hand, is heavily focused on family-friendly content, with a particular emphasis on children’s movies, superhero franchises, and iconic properties like Star Wars. While this focus appeals strongly to a specific demographic, it limits Disney+’s overall appeal, contributing to its smaller market share of 11% in the U.S. As of November 14th, Disney+ had grown to 56 million subscribers in the U.S. and Canada—a 20% YoY increase—and boasts 102.6 million paying subscribers globally (excluding North America). Disney has also seen a 13% revenue increase in 2024 from its North American customers. Notably, Disney+ HotStar, which targets the Indian market, has driven significant growth, with a 45% increase in revenue in the past year. This rapid subscriber growth poses a growing challenge to Netflix, particularly in global markets.

Amazon Prime Video offers the largest content library of the three, though its programming quality is often considered less prestigious compared to Netflix or Disney+. What sets Amazon apart is the added value of an Amazon Prime membership, which includes perks like free shipping and exclusive discounts across millions of products. This unique combination has helped Amazon Prime Video capture the largest market share in the U.S., with 22%.

A key trend to note is the dramatic shift in Netflix’s market share. At the start of 2023, Netflix held a dominant 44.21% market share in the U.S., but that has since dropped to just 21%. This decline is largely due to the increasing competition as new players enter the market and existing platforms expand their content offerings. However, this isn’t anything bad. If you look at Netflix’s revenue it’s still growing. This shows that even though their market share went down they’re not losing subscribers. We can infer from this data that people aren’t unsubscribing to Netflix, but rather a majority of the households are buying multiple streaming services.

Looking ahead, research from Statista suggests that Netflix and Amazon Prime Video will continue to grow their subscriber bases over the next few years. Meanwhile, Disney+ is projected to keep expanding through 2026, after which its growth is expected to slow and potentially decline.

In response to increasing competition, Netflix has launched an ad-supported subscription tier, priced lower than its standard plan, to attract more subscribers. By May 2024, this ad-based tier had already gained 40 million global subscribers, marking it as a notable success. Disney+ also followed this trend of the ad-supported subscription tier.

As the streaming industry becomes more crowded, each platform will need to innovate and adapt to retain existing subscribers and attract new ones. The future of the streaming market is uncertain, but one thing is clear: competition is only going to intensify.

Netflix’s Content Dominance

Despite not having the largest content library, Netflix remains a powerhouse in the streaming world, especially among young adults and adult viewers. A 2021 study revealed that 75% of Netflix’s audience falls within the 18-34 age group, highlighting its strong appeal to this demographic. The platform’s content strategy has proven highly effective:

• In 2022, 9 out of the 10 most-watched TV shows of all time were Netflix productions, with “Game of Thrones” being the sole exception.
• Popular Netflix titles like “Stranger Things,” “The Walking Dead,” “13 Reasons Why,” and “Grey’s Anatomy” dominated this list.
• Netflix Originals have garnered critical acclaim, with four of the top 10 highest-rated shows on Rotten Tomatoes being Netflix exclusives.
• As of 2024, Netflix boasts 3 of the year’s 10 best shows.

Additionally, Netflix has explored new avenues to boost viewership. On November 16th, the platform broadcasted the highly anticipated boxing match between Jake Paul and Mike Tyson, drawing a peak audience of around 65 million viewers. While the event itself was a significant milestone for Netflix, attracting such a large audience, it was marred by disappointment over the fight’s outcome—something beyond Netflix’s control. Viewers also reported technical issues, with many experiencing frozen screens or glitches during the broadcast, detracting from the overall experience. Despite these challenges, the event was still a major success for Netflix, demonstrating its ability to attract large audiences for live content. With improvements to both the technical aspects and event quality, this initiative has strong potential for future growth.

This impressive track record demonstrates Netflix’s ability to create compelling content that keeps subscribers engaged and coming back for more, solidifying its position as a leader in the streaming industry.

How Long Will this Growth Continue For? 

Since the conclusion of the bear market in 2022, Netflix’s stock has delivered an extraordinary performance, soaring from $163 per share to a peak of $830 per share—an eye-popping 409% increase in just two years. In contrast, the S&P 500 has gained 70% during the same period, underscoring Netflix’s remarkable outperformance relative to the broader market. This growth is all the more notable given the increased competition in the streaming industry and Netflix’s shrinking market share. Yet, despite these challenges, the company’s stock price has continued to climb, reflecting the effectiveness of its strategy and operational execution.

As of September 2024, Netflix commands a dominant 7.9% share of total TV screen time in the United States, a testament to its deep penetration in the streaming market. In terms of enterprise value, Netflix has now surpassed the combined total of major rivals such as Disney, Warner Bros. Discovery, Fox, and Paramount. This impressive valuation highlights Netflix’s position as a dominant player in the entertainment industry. In international markets, the company has been adjusting its pricing strategy: in countries like Spain and Italy, Netflix is raising its prices, which could lead to significant revenue growth—provided subscriber churn remains manageable. Conversely, in Brazil, Netflix is lowering prices to increase affordability, aiming to attract more subscribers in a price-sensitive market.

However, Netflix also made a significant announcement in September 2024 that could shift investor sentiment: starting in Q1 2025, the company will stop reporting its quarterly subscriber numbers. While this change is unlikely to impact the actual number of subscribers, it does mark a shift in how Netflix intends to be evaluated by the market. The move aims to shift investor focus away from subscriber growth as the sole metric for success and toward a broader set of financial and operational indicators. Netflix has stated that it’s not fair for investors to judge the company solely on subscriber numbers, particularly when fluctuations in subscriber count may not fully reflect the company’s overall health or strategic direction. While this change may prompt some uncertainty among investors, Netflix believes that focusing on profitability, revenue, and other metrics will provide a more comprehensive view of its value proposition.

As of November 6, 2024, Netflix’s price-to-earnings (P/E) ratio stands at a relatively moderate 44.14, reflecting a valuation that is more closely aligned with its earnings compared to some of its high-growth peers. For context, Disney’s P/E is 38.73, while Spotify’s is a much higher 170.83, highlighting a stark contrast in how the market values these companies. Netflix’s more measured P/E suggests that investors view its growth potential as both substantial and sustainable, even in the face of increasing competition within the streaming sector. This more balanced valuation could indicate confidence in the company’s ability to maintain profitability and steady expansion in a maturing market.

Something to note about which has always been a problem for Netflix is their debt. As of Q3, they have $1.8 million in short term debt and $14.1 million in long term debt. Their long term debt has grown by very little but their short term debt has increased by 350%. This is not good for Netflix. 

In conclusion, Netflix’s stock surge is not simply a reflection of speculative hype, but rather a result of strong financial fundamentals, strategic pricing adjustments, and an evolving narrative that goes beyond just subscriber growth. While the decision to cease reporting subscriber numbers may raise eyebrows in the short term, the company’s broader performance metrics and continued innovation in the streaming space position it for long-term success.

NFLX Stock Forecast: Analyst’s Consensus: 

The market analyst’s forecast NFLX to be at an average $760.82, with a high of $925 and a low of $550. Analyst recommendations are primarily “Buy” and a handful of “Hold” supporting slowing upward trend. 

Netflix’s 2025 Outlook: Navigating the Future of Streaming

Ultimately, I recommend a buy on Netflix for 2025. Netflix stands at a crucial juncture in its evolution. The company’s decision to stop reporting quarterly subscriber numbers from Q1 2025 signals a shift in focus towards broader financial metrics and content quality. This strategic move may initially create some uncertainty among investors but could ultimately lead to a more holistic evaluation of Netflix’s performance.

Netflix’s continued investment in original content and international expansion is likely to drive growth in 2025 and beyond. The company’s ability to produce hit shows and movies across various genres and languages will be crucial in maintaining its competitive edge.

However, challenges remain on the horizon. Intensifying competition from established rivals like Disney+ and Amazon Prime Video, as well as newer entrants in the streaming market, may put pressure on Netflix’s market share and content acquisition costs.

As the streaming landscape continues to evolve, Netflix’s focus on content quality, technological innovation, and strategic pricing will be key to maintaining its leadership position. While the road ahead may have its share of challenges, Netflix’s track record of resilience and innovation suggests that it is well-equipped to thrive in the dynamic world of digital entertainment in 2025 and beyond.

Although I maintain a buy for Netflix, I am hesitant due to the percentage Netflix stock has gone up the past year. I would continue to monitor Netflix stock and either wait for a potential pullback in price and monitor the price in case something changes.

It’s important to note that I Know First’s stock-picking AI shows a strong buy which reinforces my outlook on NFLX. The light green indicates a mildly bullish short-term forecast, while the darker green signifies a strong bullish signal for the one-year projection. 

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Please note-for trading decisions use the most recent forecast.