Will Netflix's Shares Continue Reaching Unprecedented Peaks in 2025?
Netflix (NFLX 1.41%) reached an all-time high once more on Tuesday. over the past year, the shares of this globally prominent streaming service provider have experienced a surge of 68%. Since the beginning of 2024, the stock has nearly tripled.
Even though investors are quite satisfied with the situation, it's essential to remember that Netflix's subscriber base and revenue haven't expanded by approximately 178% since the start of 2023. It could appear that the stock is outpacing the fundamentals, but it's wise to reset the baseline. Since Netflix exceeded $700 for the first time in November 2020, the stock has increased by only 17%. Undeniably, the company has improved proportionately over the past 36 months.
Can the stock's upward trajectory continue in 2025? Let's scrutinize the elements that might help Netflix's stock achieve even more new highs in the upcoming year.
Economic indicators worth enjoying
The recent robust financial report released last month caused shares to surge. Revenue amounted to $9.8 billion in the third quarter, representing a 15% increase, thanks to a 14% subscription growth. Subscriber payments have also risen, especially in the United States and Canada, as consumers now pay an average of 5% more than they did a year prior.
The financial figures were particularly pleasing. Earnings per share and operating margins soared 45% and 52%, respectively. Netflix not only outperformed expectations on revenue but also on profitability.
Netflix has now forecasted revenue growth of 15% for both the current quarter and the entire year of 2024. After experiencing single-digit revenue gains in the preceding two years, this acceleration is noteworthy. Though Netflix expects revenue growth to slow to between 11% and 13% in 2025, profitability should continue to surpass double-digit revenue growth.
Keeping ahead of the curve
Netflix might appear expensive with its current trading price of 35 times the expected earnings for the upcoming year. But given its promising future developments, the investment still seems appealing. If you had purchased Netflix for just 12 times its projected 2025 earnings estimates at the beginning of last year, the potential had been considerably lower.
A few intriguing advancements are unfolding at Netflix. Two years have passed since the announcement of a more affordable ad-supported plan. Initial results have been promising. The lower-priced option attracted budget-conscious viewers, while advertisers gained access to a previously untapped audience.
Has this offering actually proven popular? The answer is yes, and in much greater numbers than anticipated. According to Amy Reinhard, head of advertising at Netflix, more than half of new sign-ups in countries where the ad-supported option is available have chosen the cheaper tier. An impressive 70 million of Netflix's 283 million paid memberships now subscribe to the ad-supported plan.
A newer strategy being implemented is combat password sharing. Last year, Netflix began implementing this policy in certain markets. If someone you know is using your account from an out-of-home location, Netflix now requires a $8 additional fee to authorize the remote access. Since the introduction of the ad-supported tier and password-sharing crackdown, Netflix's business has seen an upturn and improved profitability.
An important difference for 2025 will be the cessation of reporting quarterly subscriber numbers. Investors will no longer have access to subscriber data or the average revenue per membership. This isn't concerning, as the model is evolving with the introduction of new tiers and monetization strategies across 190 different countries. Assess Netflix based on revenue and earnings growth, as you would with most investments.
Netflix might not double again within the next two years, but that doesn't imply it can't outperform the market in 2025. As the dominant player in the streaming services stock market, Netflix maintains a near-impeccable track record of evolving and disrupting itself. Wagering against companies like Netflix isn't advisable.
- Given the positive financial performance and strategic advancements, such as the successful launch of the ad-supported plan and the fight against password sharing, many investors are considering further investments in Netflix's finance sector, aiming to capitalize on its potential to outperform the market in 2025.
- To effectively manage your investments in the streaming services market, it's crucial to closely monitor the financial health of companies like Netflix, focusing on key metrics like revenue and earnings growth, rather than relying solely on subscriber numbers, which will no longer be reported quarterly.
