Netflix Earnings: Raising Our Fair Value Estimate Due to Blowaway Profits

Netflix posted an incredible 32% operating margin, but we see a mixed bag underneath.

Matthew Dolgin 22 April, 2025 | 8:56AM
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The Netflix logo can be seen on a building belonging to the video streaming provider.

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

Key Morningstar Metrics for Netflix

Fair Value Estimate: $720.00

Star Rating: ★★

Economic Moat Rating: Narrow

Uncertainty Rating: High

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.


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Matthew Dolgin  is an equity analyst at Morningstar

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