Netflix Stock Positioned for Explosive Growth in 2025
Netflix (NASDAQ: NFLX) shares soared after the Q4 2024 earnings report and 2025 guidance update, driven by key levers in place to propel the stock higher. These include a growing focus on business expansion and increasing shareholder value, both strengthening each quarter.
The takeaway is that the business is robust and outperforming, and the quality is greatly improved. This once diamond-in-the-rough is now the industry leader and dominant player in a strong market, producing robust cash flow and proving its value to investors.
Netflix Built Leverage for Long-Term Growth in Q4 2024
Netflix had a solid quarter in Q4 2024, reflecting the impact of business leverage that continues to grow. Leverage is seen in the increasing membership price, the growing membership, and high engagement across the network. The $10.25 in quarterly revenue is up 16.1% because of it, outpacing the consensus estimate by nearly 150 basis points on a robust increase in members. The member count grew by 6.6% sequentially and 16% year-over-year, setting company records and driving a wide margin.
The margin news is a driver for the stock price action. The company’s effort to improve operating quality and leverage its content produced significantly wider margins for the quarter and full year. The operating margin widened by 530 basis points for the quarter and 600 for the year, and there is an expectation of a widening margin in 2025. The bottom line is $4.27 in GAAP earnings, 167 bps better than expected, and free cash flow sufficient to maintain the fortress balance sheet and newly-acquired investment grade debt rating.
Guidance is mixed with the forecast for Q4, below the analysts’ consensus but offset by as-expected guidance and a high likelihood of being cautious. Regardless, the company forecasts sustained double-digit growth in 2025 with strength in the back half and tailwinds building in the ad business. The ad tiers are performing well, driving membership gains, and are being expanded upon.
Netflix Builds Shareholder Value With Robust Buyback Program
Netflix cash flow and growth outlook leave it in a healthy financial position, capable of significant capital returns and capital return growth. The highlights from Q4 and 2024 include increased cash and assets, reduced debt, and a 20% increase in equity. The equity gains are compounded by the repurchases, which reduced the count by 1.6% in Q4 and 2.3% annually. The pace of repurchases is expected to continue in 2025 because of the increased allotment. The board increased the authorization to over $17 billion, or enough for almost three years at the 2024 pace.
The analysts are responding with vigor, upgrading the stock and increasing their price target in response to the news. The consensus rating is within the Moderate Buy range but firming, leaning towards Buy, with a price target up 5% overnight following the release, 15% since late 2024, and roughly 75% for the preceding 12 months. The consensus assumes the fair value is near $850, but the post-release revisions put this stock above $1100, with a chance of hitting $1500. Rosenblatt made the bull case, which Upgraded to Buy with a $1494 target.
Netflix Has Room to Run
Netflix’s chart shows this market has room to run, with price action still well below the newly indicated price range. The caveat is that post-release action will create a gap at the opening and provide an attractive exit point. The stock is up nearly 500% in the last three years and at record levels. This market can pull back and close the gap before it moves up to set new highs near $1100 or higher.
