Netflix earnings preview: Fiscal Q1 2025

The preview

Netflix’s (NASDAQ: NFLX) expectations into the Q1 have remained remarkably stable throughout the quarter. The company guided Q1 to 10% year-over-year growth with revenue expected to be above $10 billion, in line with consensus. Visible Alpha consensus is expecting $10.5 billion. Revenues are expected to be supported by continued new membership and monetization. Offering a range of pricing and plans combined with continuing growth in the ads business is expected to further increase monetization. Consensus expects the operating margin to be 28.5%.

The company expects to grow revenues to $43-44 billion, in line with consensus of $44 billion, by increasing engagement trends and reducing churn with a more diverse entertainment offering. Gaming and the growth of ads could be key drivers in 2025. According to consensus, analysts now expect the company to generate a 29.1% margin, up from 28.3% previously estimated, on expected revenue of $44.3 billion and $12.9 billion in operating profit in FY 2025.

Last quarter, Management highlighted that the Ad Tier enables lower prices. The Company stated in the earnings call that they expect that ads revenue will roughly double year-over-year again in FY 2025. Netflix remains upbeat about the long-term opportunity, given the size of its user base. The company explained that 2025 will be the year that the ads business “will transition from crawl to walk”. Currently, consensus projects total ad-supported revenue to expand to $8.5 billion, up from $6.8 billion, by the end of FY 2027, up almost 5x from FY 2024 of $1.8 billion. There is a significant range of views on the magnitude of this growth. For FY 2027, analyst estimates range from $3.5 billion to $17.0 billion.

Based on Visible Alpha consensus, the operating profit margin is expected to grow from 26.7% in FY 2024 to 33.7% in FY 2027. Currently, consensus estimates the operating margin to surpass 31% in FY 2026, and for this to exceed 33% by the end of FY 2027. There is significant debate among analysts with respect to FY 2027 margin estimates, which range from 31% to 36%. This margin growth is expected to take FY 2024 expected diluted EPS from $19.83/share to $36.79/share or 25x FY 2027 P/E, significantly lower than the 29x it traded at the end of last quarter. The current consensus target price remains at close to $1100 or nearly 20% upside from the current levels.