On Thursday, Netflix (NFLX -1.40%) will be one of the first nonfinancial companies to report results in the second earnings season of calendar year 2025. Expectations are high because the stock is crushing the S&P 500 year to date (YTD) and is coming off a 83.1% gain in 2024.
Here are three reasons Netflix can sustain its momentum and could be a good growth stock to buy now.
Image source: Getty Images.
1. A tariff-resistant business model
Netflix reached an all-time high in February but has since pulled back in lockstep with a broader market sell-off. However, even with that pullback, the stock is still up 8.8% YTD at the time of this writing — well ahead of the communications sector, S&P 500, and Nasdaq Composite, which are all down YTD.
NFLX data by YCharts.
Since the company sells subscriptions and doesn’t export goods, it is relatively resistant to tariffs. But it is exposed to economic cycles and pullbacks in consumer spending.
The bulk of its growth comes from international users. Roughly 60% of its revenue is in currencies other than the U.S. dollar. In the most recently reported period, the fiscal 2024 fourth quarter, U.S. and Canada (UCAN) streaming revenue grew just 6.9% compared to a year ago, while Latin America (LATAM) was up just 5.6%, and the Europe, Middle East, and Africa (EMEA) segment’s sales jumped 11.9%. Asia Pacific (APAC) was the standout region with an 18.5% increase.
However, it’s worth understanding that revenue per membership is much higher in the U.S. and Canada than in other markets. Last quarter, average revenue per membership was $17.26 in the region compared to $11.11 in EMEA, $8 in LATAM, and just $7.34 in APAC.
In terms of quantity, paid members in the U.S. and Canada now make up less than 30% of the total — illustrating the importance of growing international memberships and revenue per subscriber over time.
2. High-margin content distribution
Netflix’s success stems from the global proliferation of its content. To keep users engaged, it has to balance the quantity and quality of its streaming library between content produced in-house and licensed TV shows and movies.
The company has done a masterful job producing high-quality content across different categories while also having a fair share of smashing hits. Last quarter, it attracted subscribers by streaming two NFL games on Christmas Day and the boxing event between Jake Paul and Mike Tyson.
On the fourth-quarter fiscal 2024 earnings call, management said that some users came for the games or the fight but stuck around for a highly anticipated rollout of new and recurring TV shows.
In the past, it struggled to navigate password sharing and binge watching, where users would cancel subscriptions, renew to watch a whole series in the allotted time, and then cancel again. Having strong year-round content across multiple categories can reduce the risk of cancellations. The results speak for themselves.
NFLX data by YCharts; TTM = trailing 12 months.
Netflix has steadily grown revenue and operating margins by managing costs and getting more out of its own content. One of the biggest mistakes investors can make with the stock is getting too bogged down by revenue per subscriber. The company wins when it gets the most out of a show it produces. In the past, it was almost entirely dependent on the North American market. Now, it effectively gets exposure to the international box office, extending the impact of blockbuster shows.
The company often produces shows for specific markets, but its international presence can lead to surprising hits. In 2021, the South Korean show Squid Games became an unexpected home run. It’s a perfect example of a series that started as a regional play but evolved into an international sensation.
The beauty of the business model is that there’s always potential for something to be a huge hit. And when it is, Netflix has the international exposure to get a lot out of a hit as it evolves into a franchise with multiyear benefits as new seasons emerge.
3. Pricing power
A strong content lineup gives it impeccable pricing power. Netflix has steadily increased prices over the years, with the latest hike announced last quarter. It phased out its low-priced Basic tier and implemented ad-focused options that give users access to its content for less. Last quarter, ad plans represented over 55% of sign-ups in countries where ads are offered.
Ads are another reason it’s a mistake to overly focus on revenue per subscriber. If growth in international markets is mainly ad-dependent, it will lead to lower revenue per subscriber. But if that model helps get more out of existing content, then it’s still a huge win.
As mentioned, first-quarter fiscal 2025 earnings will be announced on April 17. The company is guiding for revenue of $10.416 billion — an 11.2% year-over-year increase — an operating margin of 28.2%, and diluted earnings per share of $5.58, up 5.7%.
The 2025 content slate and how users have absorbed price increases in the few months since the hike will be more important than the quarterly figures. It will also be interesting to get management’s take on the global economy and how a potential slowdown could affect consumer spending.
A top-tier growth stock for long-term investors
Netflix has crushed the market over the long term and is well-positioned to continue that pattern for years to come. It has a clear path for steadily growing high-margin revenue. The growth internationally, paired with the success of its ad tier, offers more ways to increase viewership and get the most out of its content.
The stock isn’t cheap at 47 times earnings and a 37.5 forward price-to-earnings ratio. However, the quality of the company’s earnings makes it arguably worth the premium price if it can keep delivering results.
Like any company with an expensive valuation, Netflix is also prone to volatility if it can’t bridge the gap between investor expectations and actual results. So, you should only consider the stock if you believe in the long-term growth plan and the company’s ability to continue managing a profitable content library without overspending.