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Reading some of the sell-side notes coming into Q3 ’25 earnings release on Tuesday night, October 21, ’25 after the market close, expectations for the streaming giant are quite subdued, which is usually a plus. The stock has traded in a narrow range the last few months, gyrating around it’s 50-day moving average at $1,214, although Monday, October 20th, NFLX closed up 3.25% to $1,238, on above-average volume. Analysts are expecting Netflix to earn $6.96 in earnings per share on $11.52 billion in revenue, for expected y-o-y growth of 29% and 17% respectively. Operating income is expected near $3.6 billion and to be 25% y-o-y. The back half of ’24 Netflix put up some good numbers as the Netflix AD Suite started to engage with subscribers and then the 4th quarter of ’24 was very strong, the point being that Netflix has tough comps with Q3 and Q4 ’24 comparisons. In Q2 ’25, Co-CEO Ted Sarandos noted on the conference call that “the back half of ’25 is the best slate of new that we’ve ever had”. Operating Margin Trends Readers can see Netflix’s operating margin history in the middle of this common-size income statement, which shows that Netflix’s operating margin has moved over 30% the last two quarters, while Q2 ’25 guidance seemed to indicate that the operating margin might be flat in the 2nd half of ’25 (possibly due to the tough compares from last year). Valuation Closing at $1,238 today on Monday October 20 ’25, Netflix is trading at 47x earnings for expected EPS growth of 33% in 2025, so the stock is somewhat cheaper vs it’s expected ’25 EPS growth rate. That being said the 3-year average expected EPS growth rate is 26%, on a 3-year average expected revenue growth rate of 13%, and an average PE of 39x so there is little room for disappointment. Price-to-sales is roughly 10x – 11x (trailing twelve-months or TTM) and the cash-flow valuations are 59x and 64x respectively on a TTM basis. Netflix has doubled TTM free-cash-flow from June ’23’s $4.2 billion to June ’25’s $8.45 billion. Conclusion The Netflix Ad suite and the live sports ventures (Netflix wants to bid for Champion’s League rights in Europe), and has already contracted to live-stream the New York Yankees Opening Day in ’26. On September 15th, 16 million watched the boxing watch where Terence Crawford beat Canelo Alvarez, which will be part of this quarter’s earnings release Tuesday night. While Netflix is no longer reporting new membership growth, as US & Canada growth has slowed, the new metric moving forward will be pricing under the new ad tier and ultimately revenue per subscriber. On the q2 ’25 conference call, management guided to the upper end of the revenue range, and my guess is that operating margins will be a little better-than-expected. Still Morningstar sees Netflix as holding only a narrow, competitive moat, (surprising given Bob Iger’s comments in the last 18 months), and the emergence of YouTube rather other streaming services as a reasonable competitor. I like the rather blase’ attitude around Netflix’s earnings pre-report. Rampant bullishness is no good, while rampant bearishness can leave investors wondering it it’s worth the risk stepping in front that sentiment. The real risk around this stock is the example set by the trading action from late, 2021, when Netflix peaked at $700 per share, and ultimately bottomed in the ensuing 9 months, near $160 per share. That kind of volatility is hair-raising, but fortunately most of this present 3% position in the stock was bought after the bounce in the stock started in mid-2022. None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results. None of this information may be updated and if updated, may not be done so in a timely fashion.
