Netflix (NASDAQ: NFLX) has long
been regarded as a pioneer in global streaming and digital entertainment,
reshaping how audiences consume content worldwide. While the company’s stock
performance has faced periods of volatility and relative underperformance
versus broader market indices, Netflix’s underlying fundamentals continue to
show solid growth, improving profitability, and strengthening cash generation.
The Q4 2025 earnings report highlights that Netflix is not only growing revenue
and earnings at a healthy pace, but also doing so with expanding margins and
disciplined capital management. In this article we will dive into Netflix recent
earnings, stock performance & valuation, growth potential, and the risks
investor should consider.
About Netflix
Netflix was founded in 1997 by
Reed Hastings and Marc Randolph in Scotts Valley, California, originally
operating as a DVD-by-mail service before successfully transitioning into
online streaming in the late 2000s. Today, the company is a global leader in
subscription-based video-on-demand, offering films, series, documentaries, and
original content across multiple languages and genres. Netflix serves hundreds
of millions of subscribers worldwide, with revenue driven primarily by
subscriptions and increasingly supported by advertising-based plans.
Netflix Financial Performance
Netflix delivered a strong
financial performance in Q4 2025, reporting quarterly revenue of $12.05 billion,
up from $10.24 billion in Q4 2024, representing a 17.61% year-over-year
increase, while EPS rose to $0.56 from $0.43, marking 31.25% growth. On a
trailing twelve-month basis, revenue reached $45.18 billion, compared with $39.0
billion a year earlier, an increase of 15.85%, while TTM EPS improved to $2.53
from $1.98, up 27.58%. Free cash flow per share (TTM) strengthened
significantly to $2.18, compared to $1.58 in Q4 2024, reflecting 37.97% growth.
Profitability remained solid with a Gross profit margin of 48.49%, Net profit margin
of 24.3%, and free cash flow margin of 20.94%, supported by strong capital
efficiency with Return on assets of 15.25% and Return on equity of 42.76%,
while maintaining a manageable debt-to-equity ratio of 0.65.
Over the past five years, Netflix
has grown revenue at an 11.1% CAGR, net income at 21%, and free cash flow has
also grown rapidly. Revenue growth has reaccelerated recently, and the strong
expansion in net income makes Netflix stock attractive.
Netflix Fiscal 2026 Financial
Forecast
Looking ahead, analysts forecast 2026
revenue of $51.08 billion, implying 13.04% growth from 2025 revenue of $45.18
billion, and expect Non-GAAP EPS of $3.13, representing a 23.54% increase from $2.53.
Wall Street analyst maintains a Buy rating on Netflix with an average price
target of $112.77, offering 30.95% upside, while the highest price target of $151.4
implies potential upside of 75.81% from current level.
NFLX Stock Price Performance
and Valuation
At the time this article was written Netflix stock was trading at $86.12 per share. The stock has declined 12.5% over the past year, underperforming the S&P 500, which gained 13% during the same period, while over the past five years the stock has risen 61.7%, also trailing the S&P 500’s 86.1% increase.
Despite this relative
underperformance, Netflix’s valuation appears reasonable given its growth
profile, with a TTM Price to sales P/S ratio of 7.86 and a forward P/S of 7.47,
indicating modest revenue multiple compression ahead. The stock trades at a Non-GAAP
Price to earnings P/E of 33.06, which declines to forward P/E of 26.74 on a
forward basis. While the Price to free cash flow P/FCF ratio is 41.32.
Based on Fiscal.ai data, if we
look at valuations since 2023, the forward P/S is around its average, while the
forward P/E and P/FCF are below average. Given Netflix’s double-digit revenue
growth, accelerating EPS, and rising cash generation, the current valuation
offers an attractive entry point for long-term investors seeking quality growth
at a more reasonable price.
Netflix Growth Potential
Netflix growth prospect remains
strong, driven by several factors.
- Accelerating Advertising
Revenue Monetization
Netflix’s advertising business is emerging as its strongest new growth engine, with revenue topping about $1.5 billion in 2025 which is roughly 2.5 times 2024’s level and projected to reach around $3 billion in 2026. Advertising typically delivers higher margins than subscriptions and demands little extra content spending, making each additional ad dollar especially profitable. Netflix now sells ads in a dozen major markets, including the US, UK, Japan, and Germany, supported by its proprietary Ad Suite platform.
It is also rolling out AI-driven ad formats to refine targeting, creative optimization, and media planning efficiency. Strong demand is evident in the doubling of US upfront commitments in 2025, and by 2026 management expects ads to represent about 6% of total revenue, easing subscription dependence and lifting overall margins. - Strategic Content Investment
Supporting Engagement and Retention
Netflix plans to raise its annual content spending to $20 billion in 2026, a 10% increase from about $18 billion in 2025, with more investment front‑loaded to support key title launches. This boost targets its main strategic challenge: slowing overall viewing growth, with 96 billion viewing hours in H2 2025 up only 2% year‑over‑year, even as original content consumption grew 9%. The strategy focuses on proven franchises like Bridgerton Season 4, One Piece Season 2, and The Night Agent Season 3, alongside high‑profile new projects such as Greta Gerwig’s Narnia adaptation and Pride & Prejudice.
Licensing deals with Sony, Universal, and Paramount Skydance broaden its catalog and reduce reliance on in‑house production. Netflix also reported record customer satisfaction and industry‑leading retention in 2025, reinforcing the value of its 325 million subscribers as long‑term monetization assets across subscriptions, advertising, and other services. - Live Sports and Event
Expansion as Engagement Accelerators
Netflix’s push into live sports marks a major strategic shift with clear gains in subscriber acquisition and monetization. Its NFL Christmas Day games alone are estimated to have attracted about 430,000 new US subscribers, validating the commercial potential of live events. From 2026 to 2028, Netflix will carry key Major League Baseball properties, including Opening Night, the T‑Mobile Home Run Derby, the MLB All‑Star Game skills event, and the Field of Dreams game, plus dozens of World Baseball Classic matchups that broaden international appeal.
In parallel, a new FIFA football game timed to the 2026 World Cup aligns sports with Netflix’s gaming ambitions. Because sports audiences tend to have higher retention and ARPU, and command premium ad pricing, this vertical could add several percentage points to subscriber growth and generate over $500 million in extra annual revenue by 2027.
Risks to Consider
While Netflix stock looks like a
good opportunity we should be mindful of potential risks.
- Warner Acquisition Risks
The proposed $82.7 billion all-cash WBD acquisition faces significant regulatory scrutiny, with potential delays or rejection due to antitrust concerns under the Trump administration. The deal suspends share buybacks, increases debt levels, and pressures cash flow and earnings-per-share growth. Additionally, potential integration difficulties and rival bids from companies such as Paramount Skydance further heighten uncertainty surrounding the transaction’s completion and financial impact. - Intense Competition
Rivals like Disney+, Amazon Prime, and Paramount+ are intensifying pressure on Netflix by aggressively securing exclusive sports rights, tailoring local content for regional markets, and offering bundled streaming packages at competitive prices. This forces Netflix to escalate its spending on content acquisition and production to remain viable. Consequently, these dynamics erode Netflix's market share within increasingly fragmented streaming landscapes, where viewer attention and loyalty are spread thin across multiple platforms. - Rising Content Costs
Content amortization expenses are projected to rise 10% in 2026, with Netflix's annual content spending surpassing $18 billion, outpacing near-term revenue growth and squeezing operating margins despite ambitious 31.5% targets. These cost pressures are amplified by aggressive expansions into live events, such as sports broadcasting, and gaming initiatives, which demand substantial upfront investments and challenge short-term profitability goals.
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Conclusion
Overall, Netflix demonstrates a compelling investment case supported by consistent revenue growth, accelerating earnings, and strong free cash flow generation, while maintaining healthy margins and a manageable balance sheet. Despite recent stock underperformance versus the broader market, this disconnect has created a more attractive valuation relative to its long-term growth outlook. With expanding monetization strategies, solid analyst forecasts, and durable competitive positioning in the global streaming market, Netflix remains a well-positioned growth stock for long-term investors.
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