This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
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Netflix’s double-digit revenue growth is set to continue in the years ahead, according to consensus estimates.
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Thanks to its massive scale, the business is producing robust free cash flow.
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The current valuation reveals the market’s enthusiasm toward Netflix.
Netflix (NASDAQ: NFLX) continues to operate momentum on its side. Through the first seven months of 2025, shares of this global entertainment giant have climbed 30%, continuing an impressive streak of market-thumping returns.
The top streaming stock is taking a breather, as it's down 13% from its peak (as of July 31). Some investors might be taking profits off the table after the company's incredible run. Are Netflix shares a buy, sell, or hold in 2025?
Netflix's double-digit growth continues
Even though macro uncertainty rules the economic narrative these days, Netflix remains in solid shape. Through the first six months of 2025, the company's revenue totaled $21.6 billion, representing a 14.2% jump from the same period last year. The leadership team raised guidance, as it now sees sales coming in between $44.8 billion and $45.2 billion for the full year.
As of Dec. 31, 2024, Netflix had 302 million subscribers. Management stopped reporting quarterly subscriber numbers this year. However, new customers are still part of the story. "Year-over-year revenue growth was primarily a function of more members, higher subscription pricing, and increased ad revenue," the Q2 2025 shareholder letter reads.
Looking ahead, investors have reasons to be optimistic. "We still got hundreds of millions of folks to sign up. And from a revenue perspective, we're about 6% of consumer spend and ad revenue in the countries we serve in the areas that we serve," co-CEO Greg Peters said during the Q1 2025 earnings call.
Growth will undoubtedly slow, but this commentary is encouraging. And according to Wall Street consensus analyst estimates, revenue will increase at a compound annual rate of 13.1% between 2024 and 2027. It wouldn't be surprising to see Netflix keep posting double-digit revenue gains.
Generating robust profits
It has been remarkable watching Netflix's journey to dominating the streaming landscape. The business has certainly proved the skeptics wrong. These naysayers believed that Netflix would never be able to report consistent and growing profits, mainly because of how much money it was required to spend on content every year.
Netflix kept growing, adding subscribers and revenue, and now has reached a massive scale that has bolstered its income statement. The company's operating margin went from 7.3% in 2014 to 26.7% in 2024. This highlights the benefit of having large, fixed costs at a time when sales have expanded rapidly. Netflix can maintain its powerful competitive position because it has so many subscribers who bring in revenue and allow the company to keep spending on content and marketing efforts.
In 2025, the leadership team expects Netflix to produce $8 billion to $8.5 billion in free cash flow. That would represent a 19.6% year-over-year increase (at the midpoint). This underscores just how lucrative the business model has become.
Here's what investors should do
Netflix has crushed the market in 2025. And in the past 12 months, the stock is up 86%. To be fair, the company is reporting phenomenal financial results that highlight just how much demand there is for the streaming platform. What's more, the profits aren't too shabby.
But I believe Netflix shares have gotten ahead of themselves. As of July 31, they trade at a price-to-earnings (P/E) ratio of 49.4. This multiple alone has soared 147% just in the past three years, as the market's optimism about the company has become strikingly clear.
In my view, the stock is overvalued today. Between now and 2030, I wouldn't be shocked to see the P/E ratio contract. I don't think investors should buy shares. In fact, the best thing might be to take some profits off the table. But if you remain bullish, consider holding.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
