Netflix (NFLX 0.22%) recently reported its fourth quarter 2024 earnings, delighting the market by surpassing 300 million subscribers and $10 billion in quarterly revenue for the first time. With its continued strong performance, the stock has climbed nearly 70% over the past year and now trades near an all-time high.

So, let's dive into the streaming giant's blowout earnings report to examine its recent financials and management's outlook for 2025 to see if Netflix stock is a buy, sell, or hold.

Netflix is dominating the streaming wars

Netflix reaffirmed its dominance among streamers in 2024, closing the year with 301.6 million memberships, a robust 16% increase from the previous year. The streamer pulled in $39 billion in revenue, also up 16% year over year, while its free cash flow held steady at $6.9 billion, matching 2023 levels.

While not every peer breaks out its paid subscriber count, FlixPatrol, a platform that provides streaming data, believes Netflix is the clear leader in the space, with its closest competitors being Amazon Prime at 200 million subscribers, followed by Disney+ at 123 million subscribers.

NFLX revenue (TTM); data by YCharts, TTM = trailing 12 months.

Netflix has been putting its strong free cash flow to work by returning capital to shareholders through aggressive share repurchases, effectively increasing existing shareholders' ownership stakes. The company spent $6 billion on buybacks in 2023 and followed up with $6.2 billion in 2024, reducing its outstanding shares by nearly 4% over the past two years.

Underscoring its commitment to this strategy, Netflix's board recently approved another $15 billion for share repurchases, bringing the total to $17.1 billion -- a strong signal that existing investors can expect their stakes to continue growing.

NFLX shares outstanding data by YCharts.

What's ahead for Netflix in 2025

For 2025, management guided for full-year net revenue between $43.5 billion and $44.5 billion, which would be an improvement of 11.5% to 14.1% compared to 2024 if realized. And management expects its operating margin for the year to be 29%, an improvement of 1.6% from its 2024 operating margin of 27.4%. Notably, these projections were increases from previous guidance, demonstrating management's confidence in the business.

Beyond the strong financial outlook, Netflix investors have two exciting developments to watch, both still in their early stages. First, the company has been ramping up its live-event strategy, recently broadcasting two NFL games that drew an average minute audience of 30 to 31 million viewers. Meanwhile, the debut episode of WWE's Raw on Netflix attracted 5 million viewers.

Netflix will continue airing Christmas Day NFL games for the next two years, and its 10-year, $5 billion WWE deal (which includes a five-year opt-out option) guarantees 52 weeks of programming annually.

"Right now, we believe that the live events business is where we really want to be," said co-CEO Ted Sarandos on the latest earnings call, signaling that Netflix is committed to expanding its footprint in live entertainment.

In addition to expanding its live events, Netflix is also leveraging these broadcasts to drive advertising revenue. Live events not only attract new users to the platform but also create premium ad opportunities that complement its ad-supported membership tier. This strategy enables Netflix to offer lower price points without sacrificing revenue.

While the company doesn't disclose the breakdown of ad-free versus ad-supported subscribers, it did say that 55% of new users chose the ad-supported tier when available.

The ad tier plan also allows the company to continue raising prices across the board because it offers consumers more flexibility. The company recently announced it its standard plan without ads will increase by $2.50 from $15.49 to $17.99 per month and its ad-supported tier by $1 from $6.99 to $7.99 per month.

Again, Netflix doesn't break the numbers out, but co-CEO Gregory Peters noted on its fourth quarter 2024 earnings call that the company doubled its ad revenue from 2023 to 2024, saying: "We love our ads plan because it allows us to offer a lower price point for consumers. That's more choice, good accessibility that is proving to be popular."

Netflix has a high valuation

There's a lot of excitement about Netflix's position and execution as a market leader in the growing streaming industry. That said, blindly buying any company, no matter how well run, without examining its stock valuation is generally ill-advised.

One valuation metric that helps investors determine whether a stock is cheap, fairly valued, or overvalued is its price to free cash flow, which measures a company's trailing 12 months of free cash flow against its market capitalization. As of this writing, Netflix stock trades at 61.7 times free cash flow, a high-water mark for the past year. Even when adjusting for its 2025 projected free cash flow of $8 billion, the stock trades at 52 times forward free cash flow.

No matter how you slice it, Netflix's valuation is high, so at its present level, the streaming giant will need to continue delivering strong growth to justify its price tag.

NFLX price to free cash flow; data by YCharts.

Here's the bottom line for Netflix

For long-term investors, Netflix remains a compelling hold. The company's strong execution, growing subscriber base, the largely unlocked potential of its ad-supported tier, and its strategic expansion into live events make it well positioned for the future. However, its current valuation leaves little room for error.

For those looking to initiate a position, waiting for a pullback or dollar-cost averaging your position in Netflix may be the more prudent moves.