Key Supporting Arguments
- Amidst the unpredictability of Donald Trump’s tariff policies, Netflix might serve as a defensive play.
- Positive consumer sentiment, a surge in subscriber growth, and strategic hikes in subscription prices are poised to power robust results for the first quarter of fiscal year 2025.
Investment Thesis
Netflix (NFLX) is a global leader in video streaming, offering a vast library of original and licensed content to subscribers worldwide. With over 95% of its revenue stream coming from subscriptions, the company secures a solid foundation against the whims of market volatility. NFLX’s nascent foray into advertising contributes a mere 3% to its revenue, ensuring that any tremors in the macroeconomic climate have a minimal ripple effect.
Netflix’s business model, anchored in subscription revenue and expansive geographic diversification, shields the company from the whims of unpredictable tariff policies. Amidst the relentless cycle of tariffs being slapped on and lifted from a variety of products and the growing tide of protectionism, streaming platforms such as Netflix, which thrive on subscription-based models, emerge as devensive assets. This is largely because they steer clear of the tumultuous world of physical goods production, importation, and exportation. The sustainability of the company’s streaming empire is anchored in its formidable user engagement—clocking in at around 2 hours per household daily—paired with historically low subscriber churn and entertainment value that punches well above its price tag. These elements collectively mitigate NFLX’s risk profile in the face of a potential recession. While advertising revenue may take a hit if trade tensions intensify and trigger an economic downturn, it is worth noting that ads only contribute to about 3% of Netflix’s total revenue. Despite its worldwide footprint, the company still rakes in a hefty slice of its revenue—around 40-45%—from the U.S. market, offering a protective buffer against possible international sanctions or restrictions. Meanwhile, its strategic geographic diversification across Europe, Latin America, Asia, and the Middle East not only mitigates risks but also fortifies the sustainability of its business model.
Netflix is poised to potentially exceed expectations in its Q1 2025 earnings report. In Q4 2024, the company shattered expectations by pulling in a recordbreaking 19 million new users, a surge we anticipate will roll into 2025, powered by its rich and diverse content lineup. By the year’s end, Netflix strategically hiked prices in the U.S. and UK, a move poised to bolster its Q1 2025 revenue. With a bold target of 29% growth for 2025, the company is banking on buoyant consumer spending and these subscription price upticks to hit the mark. Netflix projects a free cash flow of no less than $8 billion, creating a strategic opportunity for potential share buybacks.
Our target price for NFLX over the next two months is pegged at $1,080, paired with a “Buy” recommendation. We suggest setting a stop-loss at $880.