Global streaming giant Netflix Inc. NFLX reported excellent financial numbers for first-quarter 2025. The company reported earnings of $6.61 per share, which beat the Zacks Consensus Estimate of $5.69. Revenues of $10.54 billion, marginally missed the Zacks Consensus Estimate 0f $10.55 billion, while increasing 12.5% year over year.

Despite trade and tariff-related doldrums, NFLX seems to have maintained healthy engagement levels in the first quarter.  With its gigantic subscriber base, NFLX is likely to stay ahead of its closest rival The Walt Disney Co. DIS. 

Strong Guidance by Netflix

Netflix reaffirms its 2025 guidance. For 2025, the company forecast revenues in the range of $43.5-$44.5 billion. NFLX is targeting a 2025 operating margin of 29%, up from the previous forecast of 28% and two points higher than the 27% operating margin in 2024.

Growing Leverage on AI

Netflix uses artificial intelligence (AI), data science and machine language (ML) extensively to provide consumers with more appropriate and intuitive suggestions. Netflix's AI platform takes into account an individual’s viewing habits and hobbies and accordingly provides recommendations. 

NFLX’s AI model compiles subscriber information and recommends content based on their preferences, which can be customized by end users. AI applications enable NFLX to offer high-quality streaming service at reduced bandwidths.  

Visibility Remains High

On April 1, Netflix launched its Ad Suite in the United States. The company will ramp up this Ad Suite in international markets starting from ensuing second quarter. This ad-supported offerings will enable management to impressive subscribers and ARPU (average revenue per user) growth. 

Buoyed by its scalable ad business, NFLX is expected to leverage its own proprietary ad system, doling away with Microsoft Corp. MSFT as its ad-tech partner. The company’s policies of offering ad-supported lower-prices tier, abolishing password sharing and effective price increase bodes extremely well for NFLX to become a defensive play on verge of a possible economic downturn. 

Excellent Estimate Revisions for NFLX Stock

For second-quarter 2025, the Zacks Consensus Estimate currently shows revenues of $10.96 billion, suggesting an improvement of 14.7% year over year and earnings per share of $6.22, indicating an increase of 27.5% year over year. The company pulled off positive earnings surprises in the last four reported quarters delivering an average beat of 6.9%.   

Moreover, Netflix has witnessed positive earnings estimate revisions for 2025 in the last 90 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 13.8% and 23.6%, respectively, for revenues and EPS in 2025. The current Zacks Consensus Estimate for 2026 revenues and EPS reflects an upside of 11.4% and 20.5%, respectively.

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Attractive Valuation of NFLX Shares

Netflix has a long-term (3-5 years) growth rate of 19.6%, well above Wall Street’s benchmark — the S&P 500 Index — growth rate of 12.6%. The company has a return on equity (ROE) of 40% compared with the S&P 500’s ROE of 17% and the industry’s ROE of 6.17%. NFLX has a current net margin of 23.07% compared with the S&P 500’s net margin of 12.7%.

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Investment Thesis 

Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. On Feb 14, the stock price touched its all-time high of $1,064.5. Thereafter, it fell to $821.1 on April 7, due to tariff-related mayhem on Wall Street. At present, the stock price is trading at an 8.6% discount from its 52-week high. 

Despite facing severe volatility, shares of Netflix is up 9.2% year to date, while the broad-market index — the S&P 500 Index — is down 10%. The average short-term price target of brokerage firms represents an increase of 10.8% from the last closing price of $973.03. The brokerage target price is currently in the range of $800 to $1,494. This indicates a maximum upside of 53.5% and a downside of 17.8%. 

However, given that earnings estimate revisions are likely to trend higher in the coming weeks, many analysts are expected to raise their price target. This will make Netflix’s risk/reward more favorable.

At this stage, it will be prudent to buy this stock on every dip. Take a systematic investment plan for this stock in order to do cost average. Hold this stock for the long term as the company’s strong execution of the last few quarters and robust future projections will generate more value. Consequently, the stock price should witness an attractive upside.

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This article originally published on Zacks Investment Research (zacks.com).

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