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Reading some of the sell-side notes coming into Netflix’s NASDAQ:NFLX Q3 2025 earnings release on Tuesday night 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 its 50-day moving average at $1,214, although on 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 to be near $3.6 billion and to be 25% y-o-y.
The back half of 2024, Netflix put up some good numbers as the Netflix AD Suite started to engage with subscribers, and then the 4th quarter of 2024 was very strong, the point being that Netflix has tough comps with Q3 and Q4 ’24 comparisons.
In Q2 2025, Co-CEO Ted Sarandos noted on the conference call that “the back half of 2025 is the best slate of new that we’ve ever had”.
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 2025 guidance seemed to indicate that the operating margin might be flat in the 2nd half of 2025 (possibly due to the tough compares from last year).
Valuation
Closing at $1,238 today on Monday, October 20, Netflix is trading at 47x earnings for expected EPS growth of 33% in 2025, so the stock is somewhat cheaper vs its 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 2023’s $4.2 billion to June 2025’s $8.45 billion.
Conclusion
The Netflix Ad suite and the live sports ventures (Netflix wants to bid for Champions League rights in Europe), and has already contracted to live-stream the New York Yankees Opening Day in 2026. On September 15th, 16 million watched the boxing match 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 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 than 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 if it’s worth the risk of stepping in front of 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.
Disclaimer: 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.
