TLDR
- Netflix reports Q2 earnings Thursday after market close, with revenue expected at $11.06 billion and EPS at $7.09
- Stock trades at 40x forward earnings, creating valuation debate among Wall Street analysts despite 40% year-to-date gains
- Options pricing suggests 6% stock movement potential, with shares possibly reaching $1,320 high or $1,180 low Friday
- Ad-tier revenue projected to double to $3 billion in 2025, up from $1.4 billion in 2024, driving growth expectations
- Analysts maintain bullish outlook with 42 Buy ratings versus 18 Hold and 1 Sell, average price target $1,263
Netflix faces a crucial earnings test Thursday as investors weigh whether the streaming giant’s premium valuation can withstand scrutiny. The company will report second quarter results after market close, with Wall Street expecting revenue of $11.06 billion compared to $9.56 billion last year.
Earnings per share are forecast at $7.09, up from $4.88 in the same period last year. Netflix’s own guidance calls for $11.04 billion in revenue and $7.03 per share in earnings.
The stock closed Wednesday at $1,250.31, down about 1% for the day. Shares have climbed 40% since January, creating fresh debate about valuation levels that now sit at roughly 40 times forward earnings.
Options traders are pricing in potential volatility. Current options activity suggests the stock could move about 6% or $70 in either direction Friday following the earnings announcement.
A move of that scale would push shares to just above $1,320 at the high end. At the low end, the stock could fall near $1,180, which would mark its lowest level since May.
Valuation Debate Intensifies
Wall Street analysts remain split on whether Netflix’s current price makes sense. JPMorgan recently urged caution, warning that much optimism may already be reflected in the stock price.
The firm maintained its Neutral rating and $1,220 price target. This represents a discount to current trading levels, reflecting concerns about stretched valuations.
Other analysts defend the premium pricing. Brian Mulberry from Zacks Investment Management noted that Netflix trades at roughly twice the valuation of the S&P 500.
“The valuation, I understand, is a little bit rich,” Mulberry said. “But this is one of the few places where you’re actually finding really strong earnings growth projected over the next two to three years.”
Earnings per share are expected to grow at an annual rate of about 21% over the next three years. This pace is triple the broader market’s projected growth rate.
Advertising Revenue Takes Center Stage
The advertising tier has emerged as a key growth driver for Netflix. Ad-tier revenue is estimated to double to about $3 billion this year, up from $1.4 billion in 2024.
Netflix announced in May that its ad-supported tier reached 94 million global monthly active users. This marked an increase from 70 million users in November.
US ad-tier members are watching approximately 41 hours of content per month. This matches the viewing time of subscribers on the ad-free plan, suggesting strong engagement levels.
The company stopped reporting subscriber numbers as a regular metric. Instead, it focuses on driving greater engagement and top-line growth.
At the end of 2024, Netflix had 301.6 million global subscribers. The company said it will disclose subscriber data in the future “as we cross key milestones.”
Netflix’s content lineup for the second half includes new seasons of popular series. “Wednesday,” “Stranger Things,” and “Squid Game” are among the major releases planned.
Live events and sports programming could provide additional growth catalysts. The company has scheduled the Taylor vs. Serrano fight, NFL Christmas Day games, and weekly WWE Raw programming.
Speculation continues about whether UFC could become the next major sports property to join Netflix’s platform.
Netflix maintains the lowest subscriber churn among major streaming platforms. This suggests high user retention and loyalty.
The stock has registered an average post-earnings move of 6% over the past four quarters. Shares have risen in three of those instances.
In April, Netflix stock gained just over 1% after beating analyst expectations. Higher subscription and ad revenues helped drive those results.
According to Bloomberg data, 42 analysts rate the stock a Buy, while 18 give it a Hold rating and just one recommends selling. The average price target among analysts sits around $1,263 per share, implying modest upside from current levels.
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