Netflix Shares Experience a 70% surge within the Past Year. Is Further Ascent Possible in 2025?
Netflix, the streaming giant (NFLX -0.17%), has bounced back with a vengeance after facing stiff competition and a dwindling lead in the streaming market. Its shares have surged an impressive 70% over the past year, leaving investors pondering if its golden run can continue into 2025.
A Standout Quarter
Netflix's fourth quarter was nothing short of spectacular. It added a jaw-dropping 18.9 million new subscribers, marking its best performance ever. Revenue grew by 16% year on year, and the operating margin expanded a remarkable 5 percentage points to 22%. The company's success could be attributed to a mix of factors, such as the popularity of its original content, live sports events, and a better fit of content to viewer preferences.
The Runaway Train of Success
Netflix's success began with compelling original content, but this was not an overnight achievement. It took years for its original offerings to reach this level, and it was a game-changer for Netflix when studios changed their partnership strategies. Adding live sports events was another strategic shift, and its ad-supported tier and gaming venture are further evidence of the company's innovative spirit.
Future Prospects
Management anticipates a 11% year-over-year sales increase in the 2025 first quarter, with an operating margin of 28.2%. This growth is expected to be driven by popular shows like Squid Game, Wednesday, and Stranger Things, along with improved content-market fit. Netflix also plans to increase its monthly subscription fees in some regions, reflecting the higher value that it delivers.
The company will also stop reporting subscriber add-ons in 2025, although it will continue to keep investors updated about its milestones. Don't expect the same high add-on figures in the first quarter, as the holiday seasonality that boosted subscriptions is unlikely to repeated.
Netflix's high subscriber base of over 300 million might lead some to believe that it is operating in a saturated market. However, management sees it differently. It estimates that it has captured only 6% of its addressable market, which it identifies as $650 billion in entertainment revenue in its markets. This leaves ample room for growth, as Netflix currently accounts for less than 10% of viewing hours in all its markets and reaches only around 750 million households with broadband (excluding China and Russia).
Valuation and Growth Prospects
Netflix's valuation, with a P/E ratio of 49 and a price-to-free cash flow ratio of 62, is rich compared to industry standards. However, these figures could be justified for such a high-growth stock, especially considering its robust prospects for the future.
Conclusion
Netflix's track record of excellence and innovation, combined with its impressive growth potential, make it an attractive investment proposition. Although its stock may not repeat its 2024 performance in 2025, it can add value to long-term portfolios, especially those with higher-growth stocks.
In light of Netflix's financial success, some investors might be interested in diversifying their portfolios by investing in other finance-related ventures that focus on media and entertainment. This strategy could help capitalize on the broader trends in the industry and potentially generate returns similar to Netflix's impressive 70% growth over the past year.
Moreover, as Netflix continues to expand its offerings, including live sports events and gaming content, there could be opportunities for financially savvy investors to explore additional investment avenues in these emerging sectors. By tracking the latest trends and developments in the industry, such as the increasing demand for high-quality original content and the potential impact of new technology on viewing habits, investors might be able to identify promising investment opportunities that align with their risk tolerance and financial goals.
