To The Moon

$Netflix(NFLX)$

Netflix (NASDAQ: NFLX) will release its third-quarter earnings on October 21, and the stakes could not be higher. Wall Street expects the streaming leader to deliver $11.51 billion in revenue, representing a 17% year-over-year increase, as investors shift focus from the once-sacred subscriber count toward what will define Netflix’s next era—monetisation quality.

For the first time in over a decade, Netflix is choosing to stop reporting subscriber numbers, a move that marks the symbolic end of the company’s “growth-at-all-costs” phase. The message to investors is clear: the era of counting customers is over; the future lies in extracting more value per viewer.

The End of the Subscriber Growth Era

From its early DVD-mailing days to its global streaming dominance, Netflix built a reputation as the ultimate growth story. Quarter after quarter, the company’s share price moved in lockstep with its net subscriber additions. Whether it was crossing 100 million subscribers in 2017 or hitting the 200 million milestone in 2021, investors were addicted to the headline number.

But in 2024, Netflix reached maturity. The company’s subscriber base now exceeds 270 million globally, saturating most major markets. With that scale achieved, management is pivoting the narrative—moving away from expansion and toward revenue optimization, margin expansion, and sustainable free cash flow.

In other words, Netflix wants to be valued like a media-tech hybrid, not a growth-obsessed startup. That means a stronger emphasis on pricing power, advertising revenue, and operational leverage. It’s a logical evolution, but it also raises the stakes for every quarterly print. Without subscriber growth to cushion weaker metrics, investors will expect consistent top-line momentum and earnings discipline.

Wall Street’s Expectations for Q3

Analysts project another strong quarter, driven by robust engagement, ad-tier growth, and ongoing password-sharing conversions. Consensus estimates call for:

• Revenue: $11.51 billion (+17% YoY)

• Operating Income: Around $2.8 billion

• Operating Margin: ~24–25%

• EPS: $4.70 (vs. $3.73 in Q3 2023)

• Free Cash Flow: $1.8–2.0 billion

That’s a solid growth trajectory, especially given the tough comparison base from last year’s password-sharing crackdown surge. The street will also look for commentary around FY2026 guidance, which could serve as a key re-rating catalyst.

Jefferies, one of Netflix’s more bullish coverage firms, recently reiterated a Buy rating with a $1,500 price target, implying nearly 70% upside from current levels. The firm sees Netflix’s Q3 execution and FY26 margin guidance as potential triggers for another leg higher.

The Rise of the Ad Tier: A New Growth Engine

If subscriber growth was Netflix’s first act, advertising is its second.

When Netflix first launched its ad-supported tier in late 2022, many were skeptical. The company had spent years priding itself on an ad-free experience and premium positioning. But with consumer price sensitivity rising and competitors like Disney+ and Hulu finding success with hybrid models, Netflix wisely recognized an opportunity.

The results have been promising. Management disclosed earlier this year that ad-tier memberships grew more than 70% quarter-over-quarter, though they still represent less than 10% of total users. The average revenue per user (ARPU) for ad-supported tiers has started to match, and in some markets even exceed, that of basic paid plans—thanks to advertising yield per viewer.

To strengthen this new revenue line, Netflix is building its own advertising technology infrastructure, transitioning away from its initial reliance on Microsoft as an exclusive ad partner. This will allow for better targeting, improved measurement, and—most importantly—higher margins. The eventual goal is to create a self-serve platform similar to YouTube’s model, where Netflix can directly sell inventory and optimize pricing.

For long-term investors, ad monetisation could represent Netflix’s single largest margin expansion lever of the decade.

Password Sharing: The Monetisation Masterstroke

Netflix’s decision to crack down on password sharing—once controversial—has turned into one of its most successful revenue initiatives. By encouraging “borrowers” to become paid users or add “extra member” accounts, Netflix has effectively monetised what was once leakage.

The company estimates that over 100 million households worldwide were sharing passwords prior to the policy. Now, millions of those accounts have converted to paying members, especially in the U.S. and Latin America. The program not only lifted paid membership metrics but also reduced churn, as converted users tend to be more engaged and less likely to cancel.

While the initial wave of conversions is likely slowing, the policy continues to yield incremental ARPU benefits, as each paid household now contributes more predictable revenue. Combined with selective price increases, this has helped drive mid-teen revenue growth even as global membership stabilizes.

Pricing Power and Content Economics

One of Netflix’s greatest strengths lies in its pricing power—a rare trait in the streaming industry. Despite raising prices across major regions in 2023, churn rates remained remarkably stable. Consumers have shown a willingness to pay for Netflix’s deep content library and global hits, from One Piece and Squid Game to Love Is Blind and Bridgerton.

Netflix’s unique content strategy—balancing high-end originals with cost-efficient international productions—has also proven superior to competitors. While Disney and Warner Bros. Discovery wrestle with ballooning production budgets and underperforming titles, Netflix continues to optimize its cost per viewing hour.

In addition, Netflix is making strategic moves into live entertainment and sports-adjacent content. Its upcoming live event with WWE and the recent announcement of “The Netflix Cup” (a golf event pairing Formula 1 drivers with PGA pros) highlight the company’s willingness to experiment without fully committing to expensive sports rights. These hybrid formats can attract large live audiences at a fraction of the cost of traditional broadcasts.

All of this positions Netflix to sustain ARPU growth even in the absence of major subscriber additions.

Operational Efficiency and Margin Expansion

Netflix’s ability to generate consistent margin expansion has been one of its defining characteristics since 2020. The company has achieved significant leverage in marketing, content amortization, and technology infrastructure.

In 2022, Netflix’s operating margin dipped to 18% amid content inflation and currency headwinds. By 2024, it’s expected to reach 25%, and analysts see potential for 30% by FY2026, assuming stable revenue growth and moderate content spending.

Management has guided for content spend around $17 billion annually, suggesting a disciplined approach to production while maintaining a broad global slate. This spending discipline, combined with stronger monetisation and a maturing ad business, has fueled one of the most dramatic free cash flow turnarounds in modern media history.

Netflix generated $6.9 billion in free cash flow in 2023—a record—and could surpass $8 billion in 2025. That kind of FCF generation places it in the same league as Big Tech peers like Meta and Alphabet, both of which have successfully monetised massive user bases with scalable ad models.

The Shift Toward Shareholder Returns

With debt levels declining and consistent FCF generation, Netflix is now in a position to return capital to shareholders. The company resumed share repurchases in 2023 and is expected to accelerate buybacks over the next two years.

Unlike legacy media peers burdened with dividend obligations, Netflix’s flexibility allows it to opportunistically buy back shares during dips, compounding long-term EPS growth.

This newfound financial maturity supports the broader narrative: Netflix has evolved from a capital-intensive disruptor into a cash-generating media powerhouse—a transition the market is only beginning to price in.

Industry Context: Streaming’s Inflection Point

The broader streaming industry remains in flux. Traditional studios like Disney, Paramount, and Warner Bros. Discovery continue to grapple with profitability challenges as cord-cutting accelerates. Most competitors are still losing money on their direct-to-consumer platforms.

Disney+, for instance, has yet to achieve meaningful profitability despite strong subscriber numbers, while Peacock and Paramount+ remain years away from breakeven. Netflix, by contrast, is generating billions in annual free cash flow, highlighting its first-mover advantage and disciplined content economics.

Moreover, Netflix’s global reach provides natural diversification. Over 60% of its revenue now comes from outside North America, giving it exposure to faster-growing regions where streaming penetration remains relatively low.

As local-language hits like Berlin (Spain), All of Us Are Dead (Korea), and Lupin (France) drive engagement, Netflix continues to dominate international streaming markets in a way that competitors struggle to replicate.

This geographic breadth gives Netflix resilience against regional slowdowns and currency fluctuations, strengthening its long-term investment case.

Valuation: How Much is Monetisation Worth?

Netflix trades at roughly 33x forward earnings and 8x forward EV/EBITDA, a premium to traditional media peers but a discount to high-margin tech companies like Alphabet and Meta. The key question is whether Netflix deserves to be valued like a mature media firm—or as a digital platform with scalable monetisation levers.

If Netflix can achieve Jefferies’ projected FY2026 operating margin of 30% and sustain mid-teens EPS growth, its valuation could re-rate toward 40–45x P/E, closer to that of the mega-cap tech cohort.

At that multiple, Jefferies’ $1,500 price target becomes mathematically defensible, representing both earnings growth and multiple expansion potential.

DCF-based estimates also support upside. Assuming revenue CAGR of 12% through 2028, stable content spend, and gradual buybacks, Netflix’s intrinsic value falls between $1,200–1,400 per share, depending on terminal margin assumptions.

The monetisation shift—if executed well—could thus unlock another multi-year leg of value creation.

What Could Go Wrong? Key Risks to Watch

Even with all its strengths, Netflix faces several key risks heading into Q3 and beyond:

1. Ad Market Volatility: Advertising revenue remains cyclical. A slowdown in global ad spend, especially in Europe, could dampen near-term monetisation gains.

2. Content Cost Inflation: If competition intensifies post-strike, content budgets may creep higher, pressuring margins.

3. Competitive Pressure: Disney+, Amazon Prime Video, and YouTube are all expanding aggressively into global entertainment, raising customer acquisition costs.

4. FX and Macroeconomic Risks: With 60%+ of revenue generated internationally, a strong U.S. dollar could weigh on reported growth.

5. Execution Risk in Ad Tech: Building and scaling an in-house ad platform is complex and capital intensive. Any delays could push out monetisation benefits.

Still, these risks are manageable within Netflix’s current financial structure, given its consistent FCF generation and balance sheet strength.

Investor Takeaway: Netflix 2.0 – The Monetisation Machine

Netflix’s third-quarter earnings will serve as a litmus test for its transformation. The company no longer needs to prove it can attract subscribers—it must now prove it can monetise them more efficiently than anyone else.

The key pillars of that transformation are clear:

• Ad-tier growth that lifts ARPU and diversifies revenue streams.

• Password-sharing conversion that stabilizes paid memberships.

• Pricing power supported by unrivaled content engagement.

• Margin expansion through disciplined spending and scale.

• Sustained free cash flow enabling buybacks and long-term shareholder value.

If management delivers another quarter of double-digit top-line growth and expanding margins, the narrative around Netflix could shift decisively—from a cyclical content platform to a durable media-tech compounder.

Jefferies’ Buy rating and $1,500 price target reflect that potential, and while the stock already trades near all-time highs, the long-term thesis remains compelling.

Verdict: A Streaming Titan Reinvented

Netflix stands at a defining juncture. The company that once disrupted television is now rewriting its own playbook—transforming from a growth-dependent subscription business into a diversified entertainment platform with multiple monetisation engines.

The coming earnings report won’t just reveal quarterly numbers—it will show whether Netflix can lead the industry into a post-subscriber era built on profitability, pricing power, and product innovation.

In a world where most media giants are still chasing break-even, Netflix already plays a different game. The question this quarter isn’t whether it can grow—it’s whether it can surprise to the upside in how profitably it does so.

Earnings Date: October 21, 2025 Expected Revenue: $11.51 billion (+17% YoY) Consensus EPS: ~$4.70 Operating Margin: ~25% Jefferies Rating: Buy | Price Target: $1,500

Final Word: If Netflix delivers both strong Q3 execution and confident FY26 guidance, expect the “streaming king” to remind investors why it still wears the crown—and why monetisation, not membership, may define the next chapter of entertainment dominance.