Netflix shares popped over 3% during Monday’s trading session after analysts at MoffettNathanson upgraded the streamer’s stock from the rating of “neutral” to “buy” and increased their 12-month price target from $850 to $1,100 per share, citing “greater confidence” in the company’s “margin expansion story.”
“Netflix has won the streaming wars. Case closed. But where does the company go from here? How much more runway for growth is ahead?,” the analysts wrote on Monday. “Despite all of Netflix’s recent success in reinvigorating growth,
we believe its engagement will allow the company to better monetize and unlock greater profits in the years ahead.”
It argued that Netflix is under-earning relative to the engagement it drives when looking at revenue per hour viewed and that it has a “consumer surplus to price
into going forward.” In 2025, Netflix plans to spend $18 billion on content, which CFO Spencer Neumann recently said is “not anywhere near a ceiling.”
“Because Netflix has more subscribers to spread its content spending across, it can afford to spend more on content. Because it has more content, it drives better engagement, leading to more subscribers and possibly better pricing power in a virtuous cycle,” MoffettNathanson said. “This is the enduring power of Netflix’s first-mover advantage in streaming.”
It also cited the continued ramp-up of the ad tier as another lever for growth, forecasting Netflix will generate over $6 billion in advertising revenue in 2027 and almost $10 billion by 2030.
“The ad tier presents a lower cost option to those subscribers where the premium ad-free pricing was becoming a stretch, but more importantly it has attracted new potential subscribers with a lower entry point,” the firm continued. “These subscribers can now be monetized more effectively in a dual revenue stream model with the addition of advertising. As we look forward, the success of the ad tier should drive margins higher without any ceiling in sight.”
While acknowledging that Netflix will incur some incremental costs as it builds out its in-house advertising platform and that content spend will likely increase, MoffettNathanson believes there is “lots of runway ahead.”
“Continued growth in subscription revenues and faster growth in advertising should drive margin expansion of at least +200 basis points per year going forward, reaching 40% by 2030 with room to grow from there,” the analysts said.
The upgrade comes as YouTube has been the clear leader in time spent watching TV, with the Alphabet-owned video platform accounting for 10.8% of streaming usage for the month of January, compared to Netflix’s 8.6%.
Netflix, who is focusing its efforts on the more than 80% of TV time not dominated by the company nor YouTube, has increased its transparency around its catalog’s performance with biannual engagement reports. However, those data batches tend to favor more recently released titles and do not show completion rates.
In the second half of 2024, Netflix members watched over 94 billion hours of programming, up 5% year-over-year. “Squid Game” Season 2 was the company’s most-viewed series during the period with 87 million views, while “Carry-On” was the most-viewed film with 137 million views. Categories that helped drive engagement to Netflix included animated films, true crime and non-English series and films.
Starting next quarter, Netflix will no longer report quarterly subscriber counts and average revenue-per-paid member figures as it shifts focus to revenue, operating margins and engagement. It will continue to provide a breakout of total revenue by region, as well as the impact of foreign exchange changes, and announce major subscriber milestones as it crosses them.
Netflix is forecasting 11.2% year-over-year revenue growth to $10.42 billion in the first quarter of 2025, which is modestly below its full-year guidance due to the timing of price changes and seasonality in its ads business. It also expects net income of $2.44 billion, earnings per share of $5.58, operating income of $2.94 billion and an operating margin of 28.2%.
For full year 2025, Netflix expects revenue growth of 12% to 14% to somewhere between $43.5 billion to $44.5 billion, up $500 million from the prior forecast. As a result, it’s targeting a 29% operating margin for 2025, up from previous guidance of 28%.
