This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- From a fundamental perspective, Netflix is operating at an extremely high level.
- Investors can expect higher revenue and earnings a year from now, as the business will likely have a bigger subscriber base.
- The market has set expectations high, with the current valuation creating an unfavorable setup.
Netflix (NASDAQ: NFLX) continues to prove that it's a top performer. In the last 12 months (as of Oct. 17), the streaming disruptor's shares have jumped 74%. At the same time, the S&P 500 has produced a total return of 16%. Netflix has even drastically outperformed Bitcoin, the world's leading cryptocurrency.
Where will this dominant streaming stock be in one year?
Netflix has tremendous momentum on its side
Despite a feeling of general economic uncertainty over the past couple of years, Netflix continues to prove that it's an outstanding business that has tremendous momentum on its side. The company received a boost during the pandemic, then experienced a temporary slowdown. It's back to registering strong growth and operating at a very high level.
Management stopped reporting subscriber numbers last year. At the end of 2024, the company had nearly 302 million members. Since revenue increased by 14% through the first six months of 2025 on a year-over-year basis, the membership count has likely continued to expand. And there is potential for further growth over the long term.
Globally, Netflix is "less than 50% penetrated into connected households," Chief Financial Officer Spencer Neumann said in January on the 2024 fourth-quarter earnings call. Wall Street analysts believe that it will post 16% revenue growth in 2025, followed by a 13% gain in 2026.
Now that the company has reached a huge scale, its profitability has been impressive. Operating margin in the second quarter was a robust 34%. This is an improvement of 7 percentage points from the operating margin in the second quarter of 2024. Because the company has big fixed costs on content creation and licensing, its bottom line can rise faster than its revenue base once it reaches a certain size.
Netflix also collects billions of dollars of free cash flow (FCF) annually, which the leadership team uses to repurchase shares. It's easy to be optimistic that FCF will increase meaningfully in the years ahead.
Investors should have total confidence that Netflix will have more subscribers and generate higher revenue and profits a year from now. While fundamental success depends on a favorable economy, the company should do well barring a severe recession that forces households to drastically cut their spending.
One key variable matters most to stock prices in the short term
Long-term investing success comes from finding high-quality businesses and owning them for many years. With that being said, there aren't many investors who would argue with the fact that Netflix is a phenomenal company. It's a category creator, having led the streaming industry to take attention away from traditional cable TV by leveraging the internet to serve video content. The brand is strong, and the business has massive scale.
The streaming stock's historical performance speaks for itself. In the past 20 years, shares have skyrocketed 29,090%. Investors who got in early have generated incredible wealth.
As mentioned, the company continues to perform at a high level from a fundamental perspective. This means that Netflix should be on every investor's watchlist as a potential portfolio addition.
To be clear, though, the stock doesn't look to be a very good buying opportunity right now. The market is asking investors to pay a price-to-earnings ratio of 51. Starting from a high valuation like this doesn't bode well for the stock price over the next 12 months since market sentiment has the biggest impact over such a short period.
If Netflix were trading at a much cheaper valuation, which might indicate softer market expectations, then there would be upside in the near term. However, this isn't the case. And it makes me believe that the stock could lag the overall market between now and the middle of October 2026.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
