After Earnings, Is Netflix Stock a Buy, a Sell, or Fairly Valued?

Netflix NFLX released its 2025 first-quarter earnings report on April 17. Here’s Morningstar’s take on Netflix’s earnings and stock.

Key Morningstar Metrics for Netflix

• Fair Value Estimate: $720.00
• Morningstar Rating: ★★
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Netflix’s Q1 Earnings

• The quarter wasn’t as positive as it appears. The firm’s margins and resulting guidance beat on profits were incredible, but they’re largely due to the timing of expenses and programming releases rather durable higher profitability.
• Total sales growth was very good, as expected, but sales growth in the United States—the most important and lucrative market—was disappointing. At only 9%, it means the company lost subscribers, saw average revenue per member decline materially, or both.
• We think growth will slow, and this quarter’s results didn’t alter that view. We think Netflix will hold up well in a recession and won’t be significantly impacted by tariffs, but we’d still expect any material economic slowdown to put even further pressure on growth, making it difficult to justify the inflated multiples at which the stock trades.

Fair Value Estimate for Netflix

With its 2-star rating, we believe Netflix stock is overvalued compared with our long-term fair value estimate of $720 per share. We’ve raised the estimate from $700 per share, implying a multiple of 28 times on our 2025 earnings per share forecast. We project about 10% average annual revenue growth over our five-year forecast, and we believe there’s room for margin expansion, as international markets mature and benefit from greater scale.

We expect subscriber growth to come mostly from international markets over the long term. After a jump in household penetration that began in 2023, which we attribute to the crackdown on password sharing and ad-supported subscription alternatives, we expect new member growth in the US and Canada to slow significantly in 2025. Over our forecast, we project member growth in the region of only 2%-3% annually, only marginally exceeding the rate we expect for household formation. We project average revenue per member in the US and Canada to rise at a mid-single-digit rate each year. We expect the firm to continue raising prices at least every two years, but we also expect a material bump from advertising revenue. Netflix began selling ad-supported subscriptions in 2022, but it has not yet reached its potential on selling ads within that service, leaving room for upside.

Read more about Netflix’s fair value estimate.

Economic Moat Rating

We assign Netflix a narrow moat rating based on intangible assets and a network effect. Netflix has two advantages that set it apart from streaming-video peers. First, it has no legacy assets that are losing value as society transitions to new ways of consuming video entertainment at home, allowing it to put its full effort behind its core streaming offering.

Second, it was the pioneer in its industry, providing it a big head start in accumulating subscribers and moving past the huge initial cash burn that we see as necessary to build a successful streaming service. This subscriber base was critical in creating a virtuous cycle for Netflix that we doubt can be breached by more than a small number of competitors, which is what we think would be necessary to dampen Netflix’s ability to earn excess economic returns for the foreseeable future.

Read more about Netflix’s economic moat.

Financial Strength

Netflix is in good financial shape. It ended 2024 with a net debt/EBITDA ratio under 1.0, with the firm holding $9.5 billion in cash and $15.5 billion in total debt. More importantly, we believe the years of cash burn are behind Netflix, giving the firm a good cash cushion after funding its content budget. Even after funding nearly $18 billion in content costs, we expect around $10 billion in free cash flow in 2025. We expect free cash flow to grow each year throughout our forecast.

Read more about Netflix’s financial strength.

Risk and Uncertainty

Our Uncertainty Rating for Netflix is High. Our rating is largely based upon the evolving streaming media landscape and the additional competition Netflix now faces. In our view, Netflix’s tremendous success is due, in large part, to it being a first mover in the streaming industry and successfully adapting its business model to where the industry was going, while its media peers were largely still focusing on their legacy businesses.

Other factors that bring greater uncertainty include the firm’s nascent ad-supported service, which will require the firm to successfully build out advertising capabilities, and the shift to creating its own content to a greater extent, as content owners have become more reticent in licensing programming to third parties.

Read more about Netflix’s risk and uncertainty.

NFLX Bulls Say

• Netflix has already created many hit shows that are exclusively available on its platform and have attracted a massive customer base. The firm’s advantage in cash generation versus competitors makes it more likely this virtuous cycle can continue, with Netflix creating more content that attracts and holds its subscribers.
• Advertising-supported subscriptions will open Netflix to a new base of subscribers and a major new source of revenue.
• Netflix has significant room to grow in international markets where it has already shown promise with local content.

NFLX Bears Say

• Netflix is beginning to face competition that it has not had to deal with in the past. As consumers have more options for quality streaming services, it’s more likely that Netflix could get cut out of some consumer budgets.
• Netflix’s US business is mature, with very high penetration of total households, meaning price increases may need to be a bigger component of future growth.
• Creating attractive content is always a gamble, meaning the allure of Netflix’s service will always be tenuous and dependent on the firm continually producing hits.

This article was compiled by Gautami Thombare.