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Will Strong Pricing & Ad Growth Lift NFLX's Margins and Drive Upside?
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Key Takeaways
Netflix raised its 2025 operating margin forecast to 30%, citing pricing and ad momentum.
Ad revenues are set to double in 2025 with 94M monthly active users on the ad-supported tier.
New ad formats and blockbuster titles aim to boost engagement and diversify revenue streams.
Netflix (NFLX - Free Report) continues to demonstrate the strength of its pricing power and advertising momentum in driving profitability. Management raised its full-year 2025 operating margin guidance to 30%, up from 29%, citing robust pricing, ad growth and favorable FX trends. This follows a strong second quarter, where the operating margin expanded 700 basis points year over year, driven by disciplined cost management and a rising mix of premium and ad-tier subscribers.
Netflix’s pricing strategy remains a key profit driver, supported by recent subscription hikes in key markets like the United States and Canada, where plans range from $7.99 to $24.99 per month. Its ad-supported tier has also become a strong growth engine, now reaching 94 million monthly active users. Management expects ad revenues to double in 2025, driven by the rollout of the Netflix Ads Suite and integration with Yahoo DSP.
Netflix is expanding globally by adjusting prices for markets like India and using generative AI to create more personalized ads. It’s also adding new ad formats like interactive mid-rolls, pause ads and live events such as WWE Raw and NFL Christmas Day games to attract premium advertisers. New interactive ad options launching in late 2025 will further boost engagement and diversify revenues. Meanwhile, blockbuster titles like The Beast in Me (Nov. 13), Stranger Things (Nov. 26) and Wake Up Dead Man: A Knives Out Mystery (Dec. 12) are set to keep engagement high, reinforcing the strength behind its pricing and ad strategy.
Reflecting this momentum, Netflix raised its 2025 revenue forecast to $44.8-$45.2 billion, up 15-16% year over year, while the Zacks Consensus Estimate projects 16% growth in 2025 and 13% in 2026.
Netflix’s Ad & Pricing Battle: Key U.S. Players
Amazon (AMZN - Free Report) is rapidly expanding its advertising dominance by integrating Prime Video, Twitch and its vast retail data into a unified ad ecosystem. With retail media revenues projected to surpass $60 billion in 2025, Amazon leverages e-commerce insights and Prime’s reach to offer powerful targeting and competitive pricing. Amazon's growing ad presence in streaming strengthens its edge over rivals, though balancing ad load and user experience remains crucial.
Warner Bros. Discovery (WBD - Free Report) is strengthening its streaming edge through a dual monetization model, expanding its ad-supported Max tier while raising ad-free prices to boost profitability. WBD’s 125.7 million subscribers and $1.3 billion streaming profit goal for 2025 highlight strong momentum. Leveraging its vast IP library, WBD’s tiered pricing and Disney bundle strategy position it competitively against Netflix in ad growth and subscriber expansion.
From a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-earnings ratio of 39.46, higher than the industry's 30.39X. NFLX carries a Value Score of D.
NFLX’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NFLX’s 2025 revenues is pegged at $45.07 billion, reflecting 15.55% year-over-year growth. The consensus mark for 2025 earnings is pegged at $26.10 per share, up by a cent over the past 30 days. This indicates a 31.62% increase from the previous year.
Image: Bigstock
Will Strong Pricing & Ad Growth Lift NFLX's Margins and Drive Upside?
Key Takeaways
Netflix (NFLX - Free Report) continues to demonstrate the strength of its pricing power and advertising momentum in driving profitability. Management raised its full-year 2025 operating margin guidance to 30%, up from 29%, citing robust pricing, ad growth and favorable FX trends. This follows a strong second quarter, where the operating margin expanded 700 basis points year over year, driven by disciplined cost management and a rising mix of premium and ad-tier subscribers.
Netflix’s pricing strategy remains a key profit driver, supported by recent subscription hikes in key markets like the United States and Canada, where plans range from $7.99 to $24.99 per month. Its ad-supported tier has also become a strong growth engine, now reaching 94 million monthly active users. Management expects ad revenues to double in 2025, driven by the rollout of the Netflix Ads Suite and integration with Yahoo DSP.
Netflix is expanding globally by adjusting prices for markets like India and using generative AI to create more personalized ads. It’s also adding new ad formats like interactive mid-rolls, pause ads and live events such as WWE Raw and NFL Christmas Day games to attract premium advertisers. New interactive ad options launching in late 2025 will further boost engagement and diversify revenues. Meanwhile, blockbuster titles like The Beast in Me (Nov. 13), Stranger Things (Nov. 26) and Wake Up Dead Man: A Knives Out Mystery (Dec. 12) are set to keep engagement high, reinforcing the strength behind its pricing and ad strategy.
Reflecting this momentum, Netflix raised its 2025 revenue forecast to $44.8-$45.2 billion, up 15-16% year over year, while the Zacks Consensus Estimate projects 16% growth in 2025 and 13% in 2026.
Netflix’s Ad & Pricing Battle: Key U.S. Players
Amazon (AMZN - Free Report) is rapidly expanding its advertising dominance by integrating Prime Video, Twitch and its vast retail data into a unified ad ecosystem. With retail media revenues projected to surpass $60 billion in 2025, Amazon leverages e-commerce insights and Prime’s reach to offer powerful targeting and competitive pricing. Amazon's growing ad presence in streaming strengthens its edge over rivals, though balancing ad load and user experience remains crucial.
Warner Bros. Discovery (WBD - Free Report) is strengthening its streaming edge through a dual monetization model, expanding its ad-supported Max tier while raising ad-free prices to boost profitability. WBD’s 125.7 million subscribers and $1.3 billion streaming profit goal for 2025 highlight strong momentum. Leveraging its vast IP library, WBD’s tiered pricing and Disney bundle strategy position it competitively against Netflix in ad growth and subscriber expansion.
NFLX’s Price Performance, Valuation & Estimates
Shares of Netflix have gained 36.8% year to date compared with the Zacks Broadcast Radio and Television industry’s rise of 30.4% and the Zacks Consumer Discretionary sector’s return of 4.9%.
NFLX’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-earnings ratio of 39.46, higher than the industry's 30.39X. NFLX carries a Value Score of D.
NFLX’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for NFLX’s 2025 revenues is pegged at $45.07 billion, reflecting 15.55% year-over-year growth. The consensus mark for 2025 earnings is pegged at $26.10 per share, up by a cent over the past 30 days. This indicates a 31.62% increase from the previous year.
Image Source: Zacks Investment Research
NFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.