We came across a bullish thesis on Netflix, Inc. (NFLX) on Long-term Investing’s Substack by Sanjiv. In this article, we will summarize the bulls’ thesis on NFLX. Netflix, Inc. (NFLX)’s share was trading at $977.59 as of Jan 24th. NFLX’s trailing and forward P/E were 49.30 and 40 respectively according to Yahoo Finance.
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Netflix has transformed its financial profile after a decade of heavy investment in content, financed by debt and marked by negative free cash flows. Since 2022, the company has entered a new phase of revenue growth and profitability, driven by strategic initiatives like curbing password sharing and launching a lower-cost, ad-supported subscription tier. These measures have significantly enhanced Netflix’s financial and operational metrics, as evidenced by its Q4 2024 results.
In Q4, Netflix posted stellar numbers, with total revenue growing 16% year-over-year (YoY) and 4.3% quarter-over-quarter (QoQ), reaching $10.25 billion, surpassing market expectations. Operating profit surged 51.9% YoY, while net profit nearly doubled, growing by an astounding 99.2% YoY. Earnings per share (EPS) climbed 105%, showcasing the immense operating leverage Netflix is achieving. A 16% revenue growth translated into nearly 100% growth in net profit, driven by margin expansion. Operating margins rose 430 basis points (bps) YoY to 22.2%, while net income margins jumped 761 bps to 18.2%. Although margins dipped QoQ due to seasonal factors, the broader trend over the last two years shows consistent improvement.
Netflix’s global expansion continues to pay dividends, with all regions reporting double-digit revenue growth. Asia Pacific (APAC) led the charge with a 25.9% YoY increase, followed by Europe, the Middle East, and Africa (EMEA) with 18% growth. The company reached a significant milestone in Q4, surpassing 300 million paid subscriptions for the first time. Paid memberships grew 21.8% YoY, driven primarily by APAC (+30%), while North America showed slower growth. Net additions totaled 18.9 million, more than double market expectations, highlighting strong subscriber retention and acquisition across key geographies. However, there are notable differences in average revenue per user (ARPU), with North America commanding the highest ARPU at $17.3 per quarter, compared to $7.3 in APAC.
Netflix’s strategic focus on live events and diversified content paid off during the quarter. The company livestreamed two NFL games, including a Christmas Day game featuring a halftime performance by Beyoncé, and a heavily viewed boxing match between Mike Tyson and Jake Paul. These events were highly successful, with the NFL games becoming the most streamed in U.S. history, averaging over 24 million viewers each, and the boxing match drawing a record-breaking global audience of 108 million. While these events boosted engagement, Netflix emphasized that its growth was not solely reliant on high-profile titles. Instead, the company’s broad and consistently strong content slate drove the majority of its subscriber additions, supported by effective product, pricing, and marketing strategies.
A key driver of Netflix’s recent success has been the introduction of its ad-supported subscription tier, which offers a lower-cost option for consumers while opening a new revenue stream for the company. This tier has gained significant traction, representing over 55% of new sign-ups in ad-enabled countries in Q4. Membership on the ad-supported plan increased by 30% QoQ, following consecutive quarters of strong growth. Engagement metrics for ad-supported subscribers are comparable to those on standard non-ad plans, indicating high satisfaction and robust viewership. Netflix’s progress in scaling this offering has set a strong foundation for achieving its advertising goals in 2025.
Despite the impressive Q4 performance, Netflix’s forward guidance for Q1 2025 was slightly below analyst expectations. The company projects revenue of $10.42 billion and EPS of $5.58, compared to consensus estimates of $10.49 billion and $5.98, respectively. However, the full-year 2025 outlook remains strong, with revenue expected to reach $43.5–$44.5 billion and operating margins targeted at 29%. Additionally, Netflix announced a $15 billion share buyback program and plans to raise prices across several markets, further enhancing shareholder value.
Overall, Netflix is in a sweet spot, leveraging its dominant global position, innovative pricing models, and robust content portfolio to drive sustained growth. With a clean free cash flow profile, strong margins, and a compelling mix of strategic initiatives, the company offers a robust investment thesis. While short-term guidance may temper expectations, the long-term outlook remains highly favorable, supported by Netflix’s ability to execute across multiple fronts and adapt to evolving market dynamics.
Netflix, Inc. (NFLX) is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 121 hedge fund portfolios held NFLX at the end of the third quarter which was 103 in the previous quarter. While we acknowledge the risk and potential of NFLX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NFLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.