Netflix is at risk of earnings letdown after $250bn rally

With Netflix shares trading near their highest valuations going back to 2022, there’s a lot riding on the streaming giant’s upcoming earnings report and its outlook for the months ahead.

Expectations have been building around a second-half slate of blockbuster sequels, including the highly anticipated Stranger Things. The stock price has nearly doubled over the past year, adding about $250 billion in market value and lifting its price-to-estimated earnings ratio to 43 times, well above the Nasdaq 100 at 27 times. The firm is due to report second-quarter results Thursday after US markets close.

“Netflix shares are priced for perfection, there isn’t a lot of room for error,” said Daniel Morgan, senior portfolio manager at Synovus Trust Co “Everybody is expecting the second half to be really strong.”

In recent years, Netflix has refined its business model after subscriber additions stalled as stay-at-home measures eased following the pandemic. It now has multiple levers to pull, including advertising sales, subscription price increases and the addition of live events like sports and concerts.

The streaming giant has stopped reporting quarterly subscriber numbers this fiscal year, a key metric that had long been the primary way Wall Street evaluated the company’s performance. In its absence investors are more focused on revenue and profit forecasts.

Wall Street is anticipating third-quarter earnings per share of $6.70 on revenue of $11.3 billion, according to the average of analyst estimates compiled by Bloomberg. That would be an increase of 24% and 15%, respectively, from the same period a year ago.

There may be disappointment if the company fails to raise its full-year sales forecast of $43.5 billion to $44.5 billion, after not doing so following strong first-quarter results in April, according to Rosenblatt Securities analyst Barton Crockett. He also cited the risk that Netflix could fall prey to changing viewership habits, with “a rising narrative” of the firm potentially losing leadership in US streaming to Alphabet Inc.’s YouTube.

“While Netflix is dismissive of YouTube as a feeder ground for content talent Netflix can poach, we see a generational change in consumer preferences that could over time prove a headwind,” Crockett wrote.

Analysts acknowledge that a lot of the stock’s multiple bakes in the buzz surrounding its highly-anticipated content — which also includes a new Wednesday series and Adam Sandler starring in Happy Gilmore 2.

“We believe that plenty of the long-term opportunity set is factored into the shares at this price,” wrote Seaport Research Partners analyst David Joyce in a note cutting the rating on Netflix to neutral from buy this month. “The company needs time to execute against the expectations in advertising, aggregating, launching experiences, and expanding share again.”

Options data indicate that the stock is set to rise or fall by about 6.5% the day after results, less than the 9.3% average move following earnings. That would be the smallest swing in at least three years, according to data compiled by Bloomberg.

Still, there is plenty of optimism ahead of the release. BofA Securities Inc. analysts led by Jessica Reif Ehrlich said that Netflix is well-positioned given its “unmatched scale in streaming, further runway for subscriber growth, significant opportunities in advertising and sports/live and continued earnings and FCF (free cash flow) growth.”

More than two-thirds of analysts covering the streaming platform have a buy-equivalent rating on the stock, while revenue growth is expected range from 14% to 16% for the next three quarters, according to data compiled by Bloomberg.

With no direct exposure to tariff uncertainty or China-related risks, the stock is “incredibly positioned, even compared to many of the Magnificent Seven,” Kenneth Leon, director at CFRA Research, said in an interview.

© 2025 Bloomberg

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.