Netflix Inc (NFLX) Common Stock US$0.001

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Netflix reported fourth-quarter revenue of $10.2bn, up 19% when ignoring currency moves, exceeding analysts’ estimates of $10.1bn. They also saw a record 19mn paid net additions compared to 13mn last year. 

Operating income rose 52% to $2.3bn, with operating margin improving from 17% to 22%, both ahead of expectations driven by higher revenue. 

Free cash flow fell 13% to $1.4bn, with net debt ending 2024 at $6.1bn. 

Full year revenue for 2025 is expected to grow 14-17% when ignoring currency moves to $43.5-$44.5bn, $0.5bn higher than prior guidance.  

The shares rose 14.7% in after-hours trading. 

Our view 

Netflix has delivered another knockout quarter, with record subscriber growth and a positive outlook for the coming year.

Netflix's ability to reduce churn (customers flip-flopping to rivals) is firmly rooted in its best-in-class original content. While it's expensive to make, it does keep eyeballs on screens in a bigger way. Add in a cash-generative business, and Netflix can increase content spending when peers are having to pull back.

The introduction of an ad-supported product is proving more popular than many could have hoped. It allows Netflix to penetrate new markets and tap into users who are priced out of the fully paid service. But filling all the new ad space is a challenge, with Netflix only able to sell around half of its total ad space at the minute.

To help drive ad revenue growth, there’s a new ad sales platform being rolled out. Plus, as the ad tier builds scale, it’ll become a more popular place for advertisers to push their products. There’s also been tough competition to attract advertisers over the past year from competitors like Amazon Prime who transitioned a large portion of their viewers to an ad-supported platform. Those headwinds should ease from here.

The group also has a market-leading international production and distribution network. Doing localised content right isn't easy, and Netflix has an enviable footprint here. This is important because longer-term subscriber growth will need to come from emerging markets, though it is encouraging to see continued growth from its original markets.

The password sharing crackdown sounds like it’s run its course, so new initiatives like live sport entertainment are on the cards to keep the train moving. We think that’s a good way to drive engagement, but it does add some extra risk.

Although the balance sheet carries a fair amount of debt, it isn't in bad health. Free cash flow is healthy, and maintaining balance sheet flexibility is a key priority. Share buybacks, which are not guaranteed, have been the favoured way to return excess capital to shareholders, but investing back in the business is the real goal for now.

Netflix is a market leader, and there are plenty of moving parts these days, which could add up to longer-term growth. We don’t view the valuation as too demanding either. But the streaming space is inherently tough, with consumers more than happy to switch providers at a whim – that’s a built-in risk that needs to be considered.

Environmental, Social and governance (ESG) risk

The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.

According to Sustainalytics, Netflix’s management of material ESG issues is average.

Netflix has to comply with significant and often complex regulations and laws, across a very large number of different countries. The group has a global anti-corruption policy, but this is not publicly disclosed, making its effectiveness difficult to assess.

There are both internal and external audits on IP infringement risk, as well as its independent ethics hotline available for employees. Cybersecurity issues are addressed by the audit committee. But it’s unclear there is any managerial or board-level responsibility for privacy management.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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