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

Netflix is set to release its second-quarter 2025 earnings report on July 17. Here’s Morningstar’s take on what to look for in Netflix’s earnings and stock.

Key Morningstar Metrics for Netflix

• Fair Value Estimate: $750.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Netflix Earnings Release Date

• Thursday, July 17, after the close of trading

What to Watch for in Netflix’s Q2 Earnings

• We’ll looking at the US and Canada sales growth rate. It should be very high, based on last year’s huge number of subscriber additions and recent price increases. We’d expect mid-teens growth. If it comes up short, that may be a sign Netflix hasn’t sufficiently been holding onto those subscriber gains.
• Any commentary on advertising revenue will be important, since advertising is a nascent but critical driver of future revenue opportunity.
• We think international markets will have to drive the biggest portion of Netflix’s long-term growth, so we’ll be looking for strength (at least double-digit growth) in all those regions, but we’ll pay attention to how much of it is due to currency tailwinds versus underlying strength.
• It’s nearly impossible for us to get our head around valuation. We think the stock is pricing in the 2030 operating targets that The Wall Street Journal reported in April, and even then, it looks a bit expensive. We think those targets look much more like stretch goals than a likely scenario.

Fair Value Estimate for Netflix

With its 1-star rating, we believe Netflix stock is significantly overvalued compared with our long-term fair value estimate of $750, which implies a multiple of 29 times our 2025 earnings per share forecast. After considering Netflix’s opportunity to widen its member base, raise prices, and generate advertising revenue with subscribers who choose lower-priced ad-supported plans, we project about 10% average annual revenue growth over our five-year forecast, and we believe there’s room for substantial margin expansion, as international markets mature and benefit from greater scale.

Read more about Netflix’s fair value estimate.

Economic Moat Rating

We assign Netflix a narrow moat 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.

Ultimately, having a successful streaming service is all about offering customers a continuing depth of appealing content at a price point that consumers deem reasonable. The streaming industry is not necessarily a zero-sum game, as customers can always add incremental subscriptions, but consumer budgets are finite, so practically we expect only a handful of streaming services to consistently hold very large customer bases, which we think will be necessary to continue funding content investments.

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 over $9 billion in free cash flow in 2025. We expect free cash flow to grow each year throughout our forecast.

Netflix does not pay a dividend, nor do we expect it to pay one in the near future. It does have a share repurchase program in place, which should provide a major outlet for some cash flow. We don’t expect major acquisitions, as those have never been a part of Netflix’s strategy, but we believe it has plenty of flexibility to pursue any attractive opportunity that arises. We expect no difficulty in rolling over debt as it comes due. Around one-quarter of Netflix’s debt—about $4 billion—matures through 2028 in similar annual increments, and another $6 billion matures over the following two years

Read more about Netflix’s financial strength.

Risk and Uncertainty

Our Uncertainty Rating for Netflix is High, largely based upon the evolving streaming media landscape and the additional competition Netflix now faces. In our view, Netflix’s tremendous success is due to its 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.

Read more about Netflix’s risk and uncertainty.

NLFX Bulls Say

• Netflix has attracted a massive customer base and high profitability. This advantage versus competitors makes it more likely a virtuous cycle can continue, with Netflix creating more content that attracts and holds more 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.

NLFX Bears Say

• Netflix faces competition 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.
• Netflix will need to spend more on content—through sports rights and local international investment—to increase membership and prices at rates it has historically, when it worked from a lower base and with less competition.

This article was compiled by James Ubi.