Morningstar

Netflix Earnings: Blowaway Profits and Strong Sales, but a Mixed Bag Underneath

We’ve raised our fair value estimate of Netflix stock.

The Netflix logo can be seen on a building belonging to the video streaming provider.
Andrej Sokolow/picture alliance via Getty
Securities in This Article
Netflix Inc
(NFLX)

Key Morningstar Metrics for Netflix

What We Thought of Netflix’s Earnings

Netflix NFLX posted an incredible 32% operating margin—350 basis points ahead of guidance—and 25% EPS growth in the first quarter. The firm also exceeded its sales guidance. However, it only maintained its full-year outlook, including for operating margins, and US sales were soft.

Why it matters: The stunning profit appears much more related to the timing of expenses rather than significant further improvement in operating performance.

  • Netflix expects even better second-quarter margins. However, expenses will rise substantially in the second half of 2025, primarily due to the release of films and other programming and associated marketing costs.
  • Content spending grew only 1% year over year, but we still expect a mid-single-digit increase for the full year. The firm maintained its 2025 guidance for $8 billion in free cash flow after generating $2.6 billion in the quarter.

The bottom line: Our outlook is generally unchanged after these results. We maintain our narrow moat and raise our fair value estimate to $720 per share from $700 due to the time value of money.

  • Our full-year estimate for earnings per share is rising, but this is largely due to share repurchases, which we don’t think add value at the current stock price.
  • We think management may now be conservative with 2025 margins, but we’re not adjusting our longer-term projections.

Between the lines: Sales growth in the United States was disappointing at only 9% year over year. Management downplayed the softness and said sales would reaccelerate in the second quarter after price hikes took effect midway through the first, but we’re not reassured.

  • Netflix is no longer reporting member numbers, but 9% growth means either the firm lost US members or average revenue per member declined. We think it’s likely both. Shifts to the ad-supported plan can weigh on ARM, and major broadcasts underpinned a surge of member additions last quarter.
  • The firm could’ve lost over a million US members and still seen ARM decline.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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