Netflix Q1 Earnings Impress: Buy on Each Dip and Hold for Long Term

Global streaming giant Netflix Inc. NFLX reported excellent financial numbers for first-quarter 2025. The company reported earnings of $6.61 per share, which beat the Zacks Consensus Estimate of $5.69. Revenues of $10.54 billion, marginally missed the Zacks Consensus Estimate 0f $10.55 billion, while increasing 12.5% year over year.Despite trade and tariff-related doldrums, NFLX seems to have maintained healthy engagement levels in the first quarter.  With its gigantic subscriber base, NFLX is likely to stay ahead of its closest rival The Walt Disney Co. DIS. Strong Guidance by NetflixNetflix reaffirms its 2025 guidance. For 2025, the company forecast revenues in the range of $43.5-$44.5 billion. NFLX is targeting a 2025 operating margin of 29%, up from the previous forecast of 28% and two points higher than the 27% operating margin in 2024.Growing Leverage on AINetflix uses artificial intelligence (AI), data science and machine language (ML) extensively to provide consumers with more appropriate and intuitive suggestions. Netflix's AI platform takes into account an individual’s viewing habits and hobbies and accordingly provides recommendations. NFLX’s AI model compiles subscriber information and recommends content based on their preferences, which can be customized by end users. AI applications enable NFLX to offer high-quality streaming service at reduced bandwidths.  Visibility Remains HighOn April 1, Netflix launched its Ad Suite in the United States. The company will ramp up this Ad Suite in international markets starting from ensuing second quarter. This ad-supported offerings will enable management to impressive subscribers and ARPU (average revenue per user) growth. Buoyed by its scalable ad business, NFLX is expected to leverage its own proprietary ad system, doling away with Microsoft Corp. MSFT as its ad-tech partner. The company’s policies of offering ad-supported lower-prices tier, abolishing password sharing and effective price increase bodes extremely well for NFLX to become a defensive play on verge of a possible economic downturn. Excellent Estimate Revisions for NFLX StockFor second-quarter 2025, the Zacks Consensus Estimate currently shows revenues of $10.96 billion, suggesting an improvement of 14.7% year over year and earnings per share of $6.22, indicating an increase of 27.5% year over year. The company pulled off positive earnings surprises in the last four reported quarters delivering an average beat of 6.9%.   Moreover, Netflix has witnessed positive earnings estimate revisions for 2025 in the last 90 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 13.8% and 23.6%, respectively, for revenues and EPS in 2025. The current Zacks Consensus Estimate for 2026 revenues and EPS reflects an upside of 11.4% and 20.5%, respectively.Image Source: Zacks Investment ResearchAttractive Valuation of NFLX SharesNetflix has a long-term (3-5 years) growth rate of 19.6%, well above Wall Street’s benchmark — the S&P 500 Index — growth rate of 12.6%. The company has a return on equity (ROE) of 40% compared with the S&P 500’s ROE of 17% and the industry’s ROE of 6.17%. NFLX has a current net margin of 23.07% compared with the S&P 500’s net margin of 12.7%.Image Source: Zacks Investment ResearchInvestment Thesis Netflix currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. On Feb 14, the stock price touched its all-time high of $1,064.5. Thereafter, it fell to $821.1 on April 7, due to tariff-related mayhem on Wall Street. At present, the stock price is trading at an 8.6% discount from its 52-week high. Despite facing severe volatility, shares of Netflix is up 9.2% year to date, while the broad-market index — the S&P 500 Index — is down 10%. The average short-term price target of brokerage firms represents an increase of 10.8% from the last closing price of $973.03. The brokerage target price is currently in the range of $800 to $1,494. This indicates a maximum upside of 53.5% and a downside of 17.8%. However, given that earnings estimate revisions are likely to trend higher in the coming weeks, many analysts are expected to raise their price target. This will make Netflix’s risk/reward more favorable.At this stage, it will be prudent to buy this stock on every dip. Take a systematic investment plan for this stock in order to do cost average. Hold this stock for the long term as the company’s strong execution of the last few quarters and robust future projections will generate more value. Consequently, the stock price should witness an attractive upside.Image Source: Zacks Investment ResearchZacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis Report Netflix, Inc. (NFLX): Free Stock Analysis Report The Walt Disney Company (DIS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks