Netflix Jumps After Mixed Q1 gross (US Miss), But Guides Well Above Consensus

As previewed earlier (see below) Netflix has emerged as the surprising „defensive” stock of the 2025 tech rout, and the company’s earnings which were released moments ago will likely validate the company’s safe status.

Netflix reported first-quarter profit that exceeded Wall Street forecasts, boosted by a recent price increase and a strong slate of programming across the globe, such as the series Adolescence.

The company reported that Q1 earnings which rose 25% to $6.61 a share, beating analysts’ estimates of $5.68 while revenues grew 13% to $10.54 billion (a US miss was offset by an EMEA beat) in line with projections of $10.5 billion. Here is a snapshot of Q1 earnings:

FIRST QUARTER RESULTS

• EPS $6.61 vs. $5.28 y/y, beating est. $5.68
  
• Revenue $10.54 billion, +13% y/y, beating estimates of $10.5 billion
  • US & Canada revenue $4.62 billion, +9.3% y/y, missing estimates of $4.68 billion
  • EMEA revenue $3.41 billion, +15% y/y, beating estimates of $3.31 billion
  • Latin America revenue $1.26 billion, +8.3% y/y, in line with estimate $1.26 billion
  • APAC revenue $1.26 billion, +23% y/y, beat estimates of $1.24 billion

Going down the income statement, the company boosted operating income by 27% to $3.3 billion, beating expectations of $3 billion. Its operating margin of 31.7% was more than three percentage points above its own forecast.

• Operating income $3.35 billion, +27% y/y, beat estimates of $3 billion
• Operating margin 31.7% vs. 28.1% y/y, beat estimates of 28.6%
• Cash flow from operations $2.79 billion, +26% y/y, beat estimates of $2.21 billion
• Free cash flow $2.66 billion, +25% y/y, beat estimates of $2.04 billion

And visually:

Looking ahead, the company projected stronger than expected results in the current quarter, forecasting sales of $11 billion and earnings of $7.03 a share, both above Wall Street projections. Here are the details:

SECOND QUARTER FORECAST

• Sees revenue $11.04 billion, beating consensus est. $10.88 billion
• Sees EPS $7.03, beating consensus est $6.24
• Sees operating income $3.68 billion, beating consensus est $3.28 billion
• Sees operating margin 33.3%, beating consensus est 30%

And defying expectations for a Trumpcession, the company’s full-year forecast has not budged, to wit: „Our revenue and profit growth outlook remains solid, with no change to our 2025 guidance forecast for revenue of $43.5-$44.5B and operating margin of 29%.„

YEAR FORECAST

• Still sees revenue $43.5 billion to $44.5 billion, estimate $44.33 billion
• Still sees operating margin 29%, estimate 29.2%
• Still sees free cash flow about $8 billion, estimate $8.51 billion

Q1 was the first time Netflix has reported financial results without disclosing how many customers it added or lost. Management is now forcing investors to judge its success or failure based on more traditional financial metrics.

As NFLX subscriber growth slows, the company is seeking to make more from the customers that it already has by selling advertising and raising prices. The company is rolling out new advertising technology in the markets where it offers ads and said it’s boosting the price of its service in France.

The company’s performance has long hinged on the caliber of its slate of original programming, which this month also included a new season of its hit show The Night Agent and the debut of WWE Raw.

Netflix devoted a significant portion of its quarterly letter to shareholders touting its investment in programming outside of the US, especially in the UK and Mexico. Counterattack, a new film from Mexico, is one of the most popular foreign-language films in Netflix history.

While we don’t know how many subs were added in Q1, the gains follow the company’s best quarter ever when Netflix added 18.9 million customers to close 2024. Most analysts anticipated the company’s growth will slow in 2025, especially after management raised prices in the US, its largest market.

For now, however, the company is doing fine: NFLX shares have been a bright spot in a troubled year so far for entertainment stocks. The stock was up 7.9% through the close Wednesday after rising 83% last year. And judging by the 5% jump after hours, the upward momentum will continue.

Earlier:

Netflix Preview

NFLX reports earnings right after the close (~4:02pm ET) with conference call at 4:45pm ET.

With 1Q marking the first quarter of no subscriber / net adds disclosures, the tactical ‘subs’ debate has quieted down (yes, still some q/q questions off the big 4Q and/or how to think about the WSJ story earlier in the week about the company hitting a $1 trillion market cap, which seemed like a planted attempt to smoke out shorts ahead of earnings and give the stock a buffer to fall from on disappointing news) with most of the debate around who will be the ‘incremental buyer’ of Netflix shares post print as the valuation us starting to stick out relative to large-cap Internet peers (albeit vs expectations for Netflix to deliver what may be a rare ‘beat’ on earnings given perceived insulation from a number of the ‘headwinds’ out there – e.g. macro slowdown, tariffs, AI capex, etc).

Here are Wall Street consensus estimates

• Q1 EPS $5.68
• Q1 Revenue $10.496BN
• Q1 Operating Profit: $3.00BN
• Q1 Net Income $2.484BN

… and UBS’ bogeys:

• Q1 Revenue Growth Reported: $10.5bn/up 12% y/y
• Q1 Revenue Growth FXN: $15%
• Q1 EBIT: $3 bn
• Q2 Revenue Growth FXN: up 16%
• Q2 EBIT: around $3.3 bn
• FY25 Operating Margin: reiterate versus prior guide 29% (some hopes for a slight walk up)
• FY25 Revenue Guide: reiterate versus prior guide $43.5-44.5 bn/14-17% y/y

And visually

In its preview of NFLX earnings, UBS writes that „shockingly” the amount of inbound on bogeys has only picked up over the course of this past week. Netflix is a crowded long and has been a defensive safe haven with investors.

According to UBS, the bar seems low, and they are the first one out of the gate, which has proved to be a lucrative move for them in the past.

Despite the broader market carnage, Netflix still comes up as a top name to own into 2025, so price action may be dictated more so by what management says to update (though not expected) FY25 and margin expansion (bulls playing for upside to the 100bp of growth, though it doesn’t feel like investors are playing for them to update this quarter). Netflix is also seen as a secular winner, with pricing power and solid underlying sub momentum given the competitive backdrop.

Investors will be focused on:

1. tone and confidence in ability to sustain double-digit revenue growth and margin expansion in 2025;
2. impact of recent pricing changes;
3. impacts to ad business given softer macro versus guide for double ad revs in 2025;
4. any implications for transitioning onto in-house ad platform along with any early learnings thus far;
5. updates on live content/sports strategy and gaming;
6. updates on content spend ($18 bn content spend versus $17 bn in 2024); and
7. competitive dynamics and what the pullback at peers is doing to their business.

Here, Goldman’s sellside desk chimes in and writes that in terms of idiosyncratic company debates coming out of the last earnings report, the bank expects investor debates to remain centered around:

1. the perceptions of competitive moat (both against traditional media competition and increasingly forward competition from YouTube, TikTok & Meta);
2. the ability for the company to continue to efficiently close the monetization gap when compared to consumption patterns;
3. how the ad supported tier might continue to scale; &
4. the rising focus on live entertainment in terms of the company’s content investments.

In its latest model, Goldman updated its forward estimates as follows:

1. slightly lowered forward net add trajectory by ~0.5mm on an annual basis (with a skew toward more ad supported subscriber adds in the coming quarters in terms of mix);
2. modestly lowered advertising revenue assumptions throughout the remaining quarters of 2025 reflecting a weakening (& less certain) advertising environment (especially among the type of brand advertising dollars that are deployed into NFLX’s platform).

Goldman remains Neutral (on the shares on the back of a balanced risk/reward from current levels) and lowered its 12-month price target from $960 to $955.