Netflix (NFLX) has cemented its position as the unrivaled king of the streaming industry with its Q2 earnings. The company has managed to grow its subscriber base, and added 8 million net users in Q2. Importantly, it is also expanding its operating margins, and expects the metric to rise to 26% in 2024, up from the previous forecast of 25%.

Markets have rewarded Netflix for the company’s remarkable growth, and shares are up 30% this year, which is roughly twice what the S&P 500 Index ($SPX) has delivered over the period. What’s the 2025 forecast for Netflix, and can the company’s growth momentum continue into next year? We’ll discuss in this article, beginning with a snapshot of the Q2 earnings report.

NFLX Beats Q2 Estimates

Netflix’s Q2 revenues rose nearly 17% YoY to $9.6 billion, which was slightly ahead of the $9.53 billion that analysts were expecting. The company’s earnings per share (EPS) came in at $4.88, up 48% YoY and ahead of the $4.74 that Wall Street was modeling. 

The company ended the quarter with 277.6 million subscribers, which easily surpassed the 274.4 million that analysts were expecting.

Netflix Proves the Bears Wrong

Netflix has surprised bears – including me – with both its top-line and bottom-line performance at a time when rivals like Disney (DIS) are trying to achieve streaming profitability by sacrificing some growth. Netflix added 30 million net subscribers last year, and has already added nearly 17.5 million more in the first half of 2024.

The company’s ad-supported plan and password-sharing crackdown were a lot more successful than what many expected. In its Q2 shareholder letter, Netflix said that ad-supported tiers account for over 45% of new subscribers in the markets where it is available.

Management also said that the ad-supported member base rose 34% sequentially in Q2, and while it did not provide an absolute number, in a mid-May update it revealed that the plan has 40 million active users. Separately, Netflix announced that it would phase out the lowest-priced ad-free plan in the U.S. and France, which is priced at $11.99 per month in the U.S.

Netflix Stock 2025 Forecast

Despite stellar growth over the last couple of years, Netflix still has some growth drivers in its arsenal for 2025 and beyond. These include:

• Better monetization of users on the ad-supported plan: Currently, the average revenue that Netflix makes from ad-supported plans is below what it makes from ad-free plans. The company’s ad-supported plan has scaled so fast that it hasn’t been able to effectively monetize the inventory. While Netflix does not expect ad revenues to be a significant revenue driver in 2025 either, it expects things to change in 2026 and beyond, with CFO Spencer Neumann even saying, “Hopefully, it becomes the point where it is a primary contributor given all of that engagement and reach that we're building.”
• Live streaming: Live streaming, including that of sporting events, could be another growth driver for Netflix. In January, it announced a $5 billion deal with World Wrestling Entertainment (WWE) and later signed a 3-year deal for the National Football League's (NFL) Christmas Day games.
• Gaming: Netflix sees gaming as a $150 billion market globally, excluding China and Russia. This does not include the related ad revenues, which the company is currently not participating in. Gaming not only increases Netflix’s value proposition for users, but could also be a revenue opportunity in the future.
• Tweaking prices: By phasing out the basic tier, Netflix has created a wide gulf between the ad-supported plan that’s offered at $6.99 per month in the U.S., and the ad-free plan that starts at $15.49 per month. The company might subsequently raise prices for the ad-supported tier, which - coupled with better monetization of ads - would help to propel its average revenue per user higher.
• Margin expansion: Netflix is working on expanding its margins further, and if it can continue to do so in 2025 and beyond, its profit growth should outstrip the topline growth.

Is NFLX Stock Getting Overvalued?

While I never doubted Netflix’s value proposition compared to other streamers, its valuations have been a breaking point. Currently, Netflix trades at a next 12-month (NTM) price-to-earnings (PE) multiple of 33.4x, which is similar to what Apple (AAPL) and Microsoft (MSFT) trade at.

I believe Netflix has earned the right to trade at elevated multiples, even as there is not much scope for margin expansion from here. The company’s earnings growth will be crucial in the coming years, and the price action will, to a great extent, depend on the kind of bottom-line growth the streaming giant brings to the table.