Netflix’s performance: margins and cash flows under the market’s scrutiny

It should be noted that the group recorded revenue (11.079 billion) up by 15.9 per cent compared with the same period in 2024. Furthermore, net profit rose to 3.125 billion (compared with 2.147 billion a year earlier). In short: the figures are on the rise. Whilst acknowledging the positive figures, however, experts have, first and foremost, focused their attention on turnover. In particular, it was noted that the top line of the balance sheet rests on three main drivers: price increases, the introduction of advertising and the stabilisation of the subscriber base (following the increase in the wake of the crackdown on password sharing). These are all solid drivers but – so the argument goes – they are not infinite: prices, for example, cannot be raised continuously without creating risks regarding user churn rates.

Netflix dismisses these concerns. The management explained that revenue is benefiting from a balanced mix: on the one hand, the increase in subscriptions is continuing alongside the growth in advertising; on the other, the pricing strategy has not – so far – led to any unusual rise in the ‘churn rate’. In particular, the company emphasised the contribution of advertising: the Netflix Ads Suite is now up and running, and advertising revenue is doubling year on year, exceeding the forecasts made at the start of 2025. In short: this is a long-term, rather than a short-term, factor.

That said, however, it has been further argued that the high level of spending on original content (which is set to remain at around 18 billion in 2025) poses a risk. Some experts have expressed concern that such a level of investment could squeeze margins if the new titles fail to generate sufficient ‘engagement’. Once again, Netflix has stated that it does not share these concerns. Firstly, it is pointed out, the company emphasises portfolio diversification: the group produces and distributes numerous titles every year, across different genres and languages, with a significant proportion of local productions (so-called ‘local for local’). This approach, the company explains, reduces dependence on individual hits (whether global or not). Indeed, even the most-watched productions account for less than 1 per cent of the total hours watched during the period under consideration. But that is not all. The multinational streaming company states that investments – albeit substantial – should not be regarded as a sunk cost. Rather, they should be seen as building an increasingly rich, proprietary catalogue that generates returns over time. Netflix, in fact, points out that original productions have a long lifespan on the platform, fuel recommendations and can also be utilised for other formats, such as games or spin-off products.

Finally: competition. Industry analysts have reiterated the issue of ever-increasing competition. This challenge comes not only from traditional rivals such as Disney+, Prime Video and Apple TV+, but also from platforms such as YouTube and TikTok, or free, ad-supported services that divert users’ attention. Whilst acknowledging the dangers posed by such fierce competition, the company indicates that it is capable of managing the situation. Not only because, on the one hand, its growth is driven – precisely – by new users, advertising, product quality and the global scale of its offering; but also because – alongside its ability to manage big data relating to its customer base – there is still ‘around 80 per cent of the TV market share that neither Netflix nor YouTube possesses’. To put it another way: there is a significant space – currently occupied, for example, by linear TV – that can be captured.

Yes, it’s been taken. But, in light of such considerations, what are the trends in the share’s market multiples? According to Seeking Alpha, on the one hand, the forward non-GAAP P/E is 44.1 (compared with an average of 14.3 for the relevant sector); on the other hand, the forward non-GAAP PEG ratio stands at 1.85 times (compared to 1.49 for the sector average). The forward price-to-cash-flow ratio, for its part, is 52.3 compared to a benchmark figure of 8.23. In this context, Seeking Alpha first notes that the valuation ‘is particularly high’ and then highlights that ‘the momentum is remarkable: the one-year performance has risen by around 68 per cent, far outpacing the sector’. In short, the DIY investor, as usual, must proceed with great caution, always taking their own risk appetite into account.

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