To The Moon

$Netflix(NFLX)$

Netflix just reported its quarterly financial results after the market closed in the U.S. on April 17th, 2025 — and the market liked what it saw. Shares rose more than 3% in after-hours trading, a strong vote of confidence from investors. As someone who’s had Netflix rated as a "buy" for a long time now, I was pleased — though not surprised — by the market’s reaction.

Just a few weeks ago, I reiterated my view that Netflix is a high-quality business trading at a fair valuation, making it an attractive long-term investment. But does that thesis still hold up after the latest earnings release? In this video, I’ll break that down for you.

We’ll go through the most important highlights from Netflix’s Q1 results, discuss how the business is performing in the context of today’s economic climate, and revisit my proprietary discounted cash flow (DCF) model so you can see what I think Netflix is truly worth today. I’ll also explain why, despite strong results, management didn’t raise guidance — and what that might be signaling about the back half of the year.

Earning Overview

Netflix reported 13% year-over-year revenue growth in Q1 and a 27% increase in operating income. Both of those numbers came in ahead of what management had guided investors to expect — a meaningful beat. This is especially impressive when you consider the backdrop of a volatile macroeconomic environment.

The first quarter of 2025 brought renewed uncertainty: the U.S. administration under President Trump began rolling out new tariffs, which created ripple effects through global markets. We also saw early signs of consumer caution, as spending began to slow in certain areas in anticipation of higher costs and broader economic concerns. So the fact that Netflix not only held up but outperformed expectations is a testament to the strength and durability of its business model.

Netflix is somewhat insulated from the direct effects of tariffs because it doesn’t sell physical goods. That’s a critical advantage. It's a digital product with minimal cost of distribution, and its pricing — especially on the ad-supported tier — remains very accessible for most consumers. In times of economic stress, people may hold off on big purchases like a new iPhone or a family vacation, but a $6.99 Netflix subscription? That’s still within reach. In fact, it often becomes an even more attractive entertainment option as people look to cut costs.

Fundamental Analysis

Netflix also continues to make meaningful progress in expanding its advertising-supported subscription tier, which is still a relatively new part of the business. On April 1st, the company officially launched its new ad tech platform in the U.S., and it plans to roll it out across its other ad-tier markets in the months ahead.

Now, we’ve already heard from management in past quarters that roughly half of all new subscribers are choosing the ad-supported plan. That’s a big shift, and it shows that this lower-priced tier is resonating with cost-conscious consumers.

But here’s the thing: this part of the business is still undermonetized. It’s early days. Netflix only introduced advertising less than three years ago, and it’s still refining its monetization strategies. The company is focused on learning how to optimize ad load, pricing, and targeting — and all of that takes time. But the runway here is massive. In this earnings report, management said they expect advertising revenue to double year-over-year in 2025, which shows just how fast this segment is growing.

This isn’t just a side hustle anymore. Advertising is evolving into a legitimate second revenue engine for Netflix — and that diversification is a big deal for investors who are focused on long-term growth potential.

In Q1 2025, Netflix utilized its strong cash flow to make significant financial moves:​

• Debt Reduction: The company repaid $800 million of senior notes, financed through proceeds from a 2024 refinancing initiative.​

• Share Repurchases: Netflix repurchased 3.7 million shares, amounting to a total expenditure of $3.5 billion. The company still has $13.6 billion available under its current share repurchase authorization, indicating ongoing opportunities for share buybacks.​

These actions reflect Netflix's commitment to strengthening its financial position and returning value to shareholders.

Guidance

Cautious Despite a Strong Start

Now, here’s where things get a bit more nuanced. Despite the strong first quarter and bullish expectations for Q2, Netflix did not raise its full-year guidance. The company is still projecting $44 billion in revenue and an operating margin of 29% for the full year.

That’s conservative, especially when you consider the margins they’ve already delivered. Let’s look at the numbers:

• Q1 revenue grew by 12.5%, and the operating margin came in at 31.7%.

• Q2 guidance calls for 15.4% revenue growth and an operating margin of 33.3%.

If you average out those first two quarters, Netflix is on pace for an operating margin over 32% for the first half of the year. So to end the year at just 29%, the second half would need to come in significantly lower — around 25% operating margin in Q3 and Q4. That’s quite the drop.

So why is management being so cautious? I think it’s largely due to ongoing macroeconomic uncertainty. Netflix's leadership team doesn’t want to overpromise — especially when there’s a real chance of slowing global growth or even a mild recession in the back half of the year.

This kind of conservative guidance also gives them flexibility. If the economy holds up better than expected — and remember, we’ve already seen one recession scare get skipped back in late 2022 — Netflix will likely outperform this guidance, and that could set the stage for more bullish sentiment later in the year.

Free Cash Flow

Netflix's free cash flow (FCF) performance and outlook remain strong, reflecting the company's robust financial health and strategic initiatives.​

Q1 2025 Free Cash Flow Performance

In the first quarter of 2025, Netflix reported a free cash flow of $2.7 billion, marking a 24.5% increase year-over-year from $2.1 billion in Q1 2024. This significant growth is attributed to the company's operating leverage, where revenue growth outpaces fixed costs, leading to higher profitability. The FCF margin also improved, rising from 22.8% in Q1 2024 to 26.5% in Q1 2025, indicating enhanced efficiency in converting revenue into cash flow.​

Full-Year 2025 Outlook

Netflix maintains its forecast of achieving approximately $8 billion in free cash flow for the full year 2025. This projection underscores the company's confidence in its ongoing strategies, including investments in global content production and the expansion of its advertising technology platform. Despite macroeconomic uncertainties, Netflix's management remains optimistic about its ability to enhance revenue and profitability through these strategic initiatives.​

Risks and Challenges

Increasing Competition

The streaming industry has become intensely competitive, with strong players like Disney+, Amazon Prime Video, Apple TV+, and Max all fighting for attention and content rights.

• Challenge: Competing against rivals with deep pockets and growing content libraries.

• Implication: Netflix must continue investing heavily in original content to differentiate itself, which increases costs and risks.

High Content Spend and Profitability Pressure

Netflix invests billions annually in content creation, which supports subscriber engagement but also weighs on margins if not monetized effectively.

• Challenge: Balancing content quality and quantity without eroding profitability.

• Implication: If content spending outpaces subscriber or ad revenue growth, free cash flow could come under pressure.

Economic Sensitivity and Consumer Behavior

Although considered resilient, Netflix is not immune to economic headwinds. A global slowdown, rising unemployment, or consumer belt-tightening could limit spending on non-essential services.

• Challenge: Retaining subscribers during tough economic periods.

• Implication: A price-sensitive environment may pressure ARPU growth or increase churn, particularly in international markets.

Advertising Monetization Execution Risk

The ad-supported tier is a major new revenue stream, but it remains in early stages of development. Monetization success depends on user adoption, advertiser demand, and effective targeting.

• Challenge: Scaling the ad business while maintaining a positive user experience.

• Implication: Underperformance here could mean a missed opportunity for long-term revenue diversification.

Valuation Risk

Netflix trades at a premium valuation based on expectations for sustained growth and profitability improvements.

• Challenge: Justifying high multiples amid economic uncertainty and cautious guidance.

• Implication: Any earnings or revenue miss, or a deceleration in margin expansion, could lead to sharp multiple compression.

Valuation

Following the earnings release, I updated my discounted cash flow model to reflect the latest results and outlook. Based on my revised assumptions, I now calculate Netflix’s intrinsic value at $919 per share — up about $20 from my prior estimate.

As of the most recent close, Netflix was trading around $973 per share, although that price hasn’t yet been updated to reflect the post-earnings move, since the market was closed for the Good Friday holiday.

So how does that stack up?

In my view, Netflix stock is now fairly valued. It’s trading modestly above my calculated intrinsic value, but not by a wide enough margin for me to consider it overvalued — especially given the quality of the business and the potential for long-term growth. I always like to see a margin of safety, but I’m also a firm believer that buying great businesses at fair prices is a winning strategy over the long term.

Market sentiment

market sentiment toward Netflix is notably optimistic, supported by the company’s strong Q1 earnings performance and its perceived resilience in a challenging macroeconomic environment. Overall, sentiment around Netflix remains highly positive. The company is seen as a category leader with durable competitive advantages, growing monetization opportunities through advertising, and the ability to maintain strong margins even in uncertain economic conditions. Investors continue to view it as a compelling long-term holding, especially when trading near fair value.

Analyst Outlook and Stock Movement

Following the better-than-expected Q1 earnings report, several major analysts increased their price targets for Netflix. The stock rose over 3% in after-hours trading and has gained more than 9% year-to-date, outpacing the broader market. The rally was driven by solid revenue growth, strong operating margins, and accelerating momentum in its ad-supported subscription tier.

Retail Sentiment and Investor Confidence

Retail investor enthusiasm remains high. Online platforms and trading communities reflect a strong bullish tone, with many investors encouraged by Netflix’s ability to deliver consistent growth and adapt to changing consumer preferences. Discussion volumes around the stock remain elevated, indicating sustained interest and confidence in its outlook.

Economic Resilience and Sector Leadership

Despite broader concerns around tariffs, inflation, and the possibility of an economic slowdown, Netflix has continued to perform well. Its subscription-based model, low relative cost to consumers, and digital-only product offering make it less vulnerable to economic headwinds compared to companies that rely on physical goods or discretionary spending categories like travel and luxury retail.

Ad-Supported Tier and Revenue Expansion

A key driver of optimism is the rapid growth in Netflix’s ad-supported subscription tier. Since its introduction, it has gained strong traction—accounting for more than half of all new sign-ups in supported regions. Management expects advertising revenue to nearly double year-over-year, thanks to the successful launch of its proprietary ad tech platform and increased advertiser demand.

Conclusion

To wrap things up: Netflix delivered a strong first quarter, exceeded its own guidance, showed resilience in a choppy economic environment, and continues to build out a second revenue stream with major growth potential in advertising.

Yes, the company kept full-year guidance unchanged, and that’s led to a somewhat muted stock response. But I see that more as management being prudent, not pessimistic.

The last time I formally updated my Netflix recommendation was on January 21, 2025, when I reiterated my buy rating. Based on everything we’ve seen in this latest earnings report, I’m reiterating that buy recommendation once again.

This remains a world-class business with strong competitive advantages, optionality through ads, and pricing power. For long-term investors, especially those looking for a mix of quality and growth, I believe Netflix is still an excellent stock to own.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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