From Morningstar: 2024-10-18 06:27:00

Netflix reported strong third-quarter sales growth with a significant increase in subscribers, pushing margins beyond expectations. Fair value estimate: $550. Morningstar Ratings: 2 stars. Economic Moat Rating: Narrow. Uncertainty Rating: High.

The company provided a sales and margin outlook for 2025, showing less deceleration than anticipated after a successful 2024. Despite a slowdown in subscriber growth, Netflix has strategies for financial improvement, leading to an increased fair value estimate of $550. The market may be overestimating future successes due to market saturation and anticipated moderate margin expansion.

Third-quarter sales increased by 15%, adding 5 million global subscribers. Subscriber growth is slowing after previous surges, suggesting a normalized pace. Future growth may come from advertising monetization and potential price increases, as average revenue per subscriber remains flat globally.

Netflix’s 2025 outlook predicts 10-12% sales growth, driven by subscriber additions and potential price increases. Recent price hikes in certain regions hint at possible US increases. Advertising remains a small revenue contributor, but the ad-supported user base is expanding steadily.

Operating margin reached nearly 30% in Q3, with expectations for further expansion in 2025. Content costs are expected to rise, offsetting gains from price increases. Despite a slow margin expansion trajectory, Netflix remains well-positioned against competitors.

Margins outperformed expectations in 2024, despite rising content costs, especially in live sports programming. Content amortization expenses are relatively flat but expected to rise, limiting margin expansion. Continued growth may be slower due to ongoing content spending and amortization.



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