Summary

• The global video streaming market is projected to reach $119 billion by 2025, with a CAGR of 6.89% from 2025-2029.

• The company combines a high EBITDA margin with robust growth. With a PEG of 1.45x, it offers 17% appreciation potential and presents solid financial health.

• 4Q24 brought 19 million new subscribers and a 12%-14% increase in revenue projection for 2025. Competitiveness and changes in consumer behavior are potential risks.

Choreograph

Investment Thesis

I recommend buying Netflix (NASDAQ:NFLX). The company is a pioneer and leader in the streaming market, which has excellent growth rates until 2029. Netflix's investments in content have been very effective, boosting shares by 84% in 2024.

The second season of Squid Game was considered a success after being watched by more than 200 million subscribers. The ad-supported plan, which doubled advertising revenue, accounted for 55% of new subscriptions. Live sports events further expanded the base and diversified revenue.

One of the pillars of its success is the fact that consumers are more likely to pay for an entertainment app than any other. The company's financial strength and fair valuation seem like a great opportunity to me.

Finally, Netflix presented its 4Q24 results, and they were impressive. The strategies of plans with ads and the robust content catalog have been great drivers of the result.

Streaming Market

The global video streaming market is expected to reach $119 billion in revenue by 2025. This is expected to represent a compound annual growth rate (CAGR 2025-29) of 6.89%, with the market reaching $155 billion by 2029.

Projected Revenue in the Video Streaming Market (The Author and Statista)

The US currently accounts for around 40% of global revenue. By 2025, the number of global users is expected to reach 1.8 billion, and the average revenue per user (ARPU) is expected to reach $78.97.

Data from mid-2024 shows that video streaming usage has reached 40% of TV usage in the US. Among the pure video streaming operators, we have Netflix in first place, and that is what we will talk about now.

Streaming Hits 40% of US TV Usage for the First Time (Nielsen, Statista)

Corporate Profile

Netflix is ​​a leader and pioneer in the entertainment streaming market. Its portfolio includes films, series, documentaries, and more. The company is headquartered in California and began as a DVD rental service, evolving into streaming only in 2007.

The company operates on a subscription model, and its growth is incredible. Netflix currently has more than 300 million subscribers. The company's competitive advantages lie in its sophisticated algorithm that maximizes engagement, and in its high-quality original productions.

Number of Subscribers (Statista)

An interesting fact is that the company's shares performed magnificently and rose 84% in 2024. But what is behind this surge in shares?

Reasons for Excellent Performance

It is interesting to remember that the path has not been all glories so far. In 2019, Disney launched Disney+, and in 2022, Netflix dealt with its first quarterly decline in subscribers since 2011. Well, this seems to have been fuel for its executives to turn things around.

After heavy investments, its competitors are reducing expenses and focusing on profitability. Disney, for example, announced a reduction of $4.5 billion in content spending. On the other hand, Netflix is ​​getting its content and return strategies right.

Cash Content Spend and Return on Content Spend (Alphinity)

Another factor is also decisive in my view. Netflix has aggressively entered live sports with the Tyson vs. Jake Paul fight. This brings great prospects for the company in global-scale events, and consequently increases user engagement.

The company's economics have improved considerably compared to its competitors when we look at the number of subscribers. I'll talk more about this in the results chapter soon.

Finally, Netflix is ​​the leader and pioneer in the segment that people are most willing to subscribe to in order to access content. According to research, consumers are more willing to subscribe to entertainment platforms.

What Types of Apps Do People Pay For (Visual Capitalist)

Now, we will talk more about the company in comparison with its competitors.

Financial Analysis

The diagram below is quite interesting because it compares Netflix's profitability against its competitors in the streaming market. Let's look at the numbers.

Profitability (Visual Capitalist)

As we can see, Netflix did not compromise on profitability in order to significantly increase its number of subscribers. Next, we’ll expand this financial analysis against the competitors listed above.

Financials (Seeking Alpha)

It is incredible to note that despite its size, Netflix has the 2nd highest EBITDA margin and revenue growth over the last 5 years. In the other indicators, Netflix is ​​the leader by a wide margin, and this corroborates my buy recommendation.

Valuation

All this quality comes at a price, but in my opinion it is fair. First, let's evaluate the company using Seeking Alpha's tools. To do this, we will use the PEG, since it is a growth company.

Valuation (SA)

The company has a Non-GAAP PEG (FWD) valued at C-, and I was pleasantly surprised that this valuation was not even more stretched. We can also see this in the historical PEG of the last 3 years.

PEG (Koyfin)

Over the last year, the company has traded at 2.1x PEG at highs and 1.3x PEG at lows, for an average of 1.7x. The tool indicates that the company is currently trading at a PEG of 1.45x, which implies an upside of 17%. Since the company is trading at $954, we would have a target price of $1116 per share using these calculations, which supports the buy recommendation.

It is also important to note that despite the buy recommendation, Netflix is ​​part of my recommended portfolio, which is available in the article published here on Seeking Alpha on January 7th.

Latest Earning Results

Netflix has released its impressive Q4 results. I will discuss each of the key points below. The company reported a record net addition of 19 million subscribers and surpassed 300 million subscribers. The main driver in the company's view was the broad content offering and the success of the second season of Squid Game.

subscribers (IR Company)

The ad-supported plan showed robust growth and represented 55% of new subscriptions in countries where it was available. In addition, ad revenue doubled in 2024, and the company believes it will repeat the feat in 2025.

Monetization (IR Company)

The company recorded strong viewership levels for NFL games, in addition to the success of WWE. Despite this, the company continues to consider full-season costs as still challenging from an economic perspective.

As such, the company reported $10.25 billion in net revenue in Q424, and beat estimates by $138 million. Additionally, earnings per share reached $4.27, above the consensus of $4.21, and what are the expectations going forward?

The company revised its operating margin projection upwards in 2025, and revenue growth is expected to range between 12% and 14%. The content budget is also expected to grow from $17 billion in 2024 to $18 billion in 2025.

Potential Threats to the Bullish Thesis

I see three risks to this thesis, and the first is consumer behavior. A recent survey showed that the number of young Americans who do not watch TV is increasing. If this is a structural trend, it could be a problem for the company.

Young Americans are Turning Off the TV (Statista)

The second risk concerns competitors. Netflix seems very well positioned against its video streaming competitors, but what about YouTube? Isn't YouTube the company's biggest competitor? What would the market look like if YouTube modernized and started investing in its own entertainment content?

Last, but not least, my recommendation differs from Seeking Alpha's Quant recommendation. Due to a stretched valuation, the tool recommends that investors simply hold their shares.

Quant Rating and Factor Grades (Seeking Alpha)

The Bottom Line

Netflix has simply impressed the market with its results. The company, which is a pioneer in its market, has shown great resilience to overcome a period of doubt in 2021 and reap great rewards now.

The company is in better financial health than ever, and its valuation, which we analyzed using PEG, includes a potential appreciation of 17%, which may even be underestimated depending on the assumptions.

Based on this analysis, I recommend buying Netflix shares. The company has a good risk-return ratio with a growing market, a resilient business model, and a fair valuation.