Netflix earnings preview: Fiscal Q2 2025

Earnings preview

Expectations into Q2 have remained stable throughout the quarter. Last quarter, Netflix (NASDAQ: NFLX) guided to a stable outlook, in line with consensus. Visible Alpha consensus is expecting $11.1 billion for Q2 and $44.5 billion for FY 2025. 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 increase to 33.2% in Q2 and to 29.6% for FY 2025.

The company expects to grow revenues by increasing engagement trends and reducing churn while offering 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 29.6% margin, up from 28.3% previously estimated, on expected revenue of $44.5 billion and $13.2 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. Since the beginning of 2025, the ad-supported revenue estimate has been moving higher into the Q2 earnings release. While expectations are still below the initial forecast of $1.4 billion back in early 2024, the trend is improving.

Netflix remains upbeat about the long-term opportunity, given the size of its user base. Co-CEO Gregory Peters explained that 2025 will be the year that the ads business will step up to the plate to swing. Currently, consensus projects total ad-supported revenue for FY 2027 to expand to $6.7 billion, but down from the expected $8.5 billion last quarter. There is a significant range of views on the magnitude of growth. For FY 2027, the analyst estimates range has narrowed from $3.5 billion to $17 billion to now $3.5 billion to $9.2 billion.

Based on Visible Alpha consensus, the operating profit margin is expected to grow from 26.7% in FY 2024 to 34.4% in FY 2027, an increase of 70bps since last quarter. Currently, consensus estimates the operating margin to approach 32% by the end of FY 2026. There is significant debate among analysts with respect to FY 2027 margin estimates, which range from 31% to 37%, an expansion of 100bps since last quarter. This margin growth is expected to take FY 2024 expected diluted EPS from $20.22/share to $37.77/share or 33x FY 2027 P/E, significantly higher than the 25x it traded at last quarter. The current consensus target price remains at close to $1330 or nearly 7% upside from the current levels.