The streaming TV service specialist’s first-quarter results smashed expectations and sent shares surging higher.
Last Thursday, streaming service giant Netflix (NFLX 1.44%) reported solid first-quarter results that pushed shares back above $1,000 in after-hours trading. The Street likely loved the company’s huge bottom-line outperformance and management’s decision to reaffirm its full-year outlook for strong top-line growth and an improvement in its operating margin.
“We’re executing on our 2025 priorities,” Netflix said in its first-quarter shareholder letter. Those priorities include enhancing its content slate, growing its advertising business, leaning into its more nascent growth initiatives, such as live programming and games, and ultimately driving robust revenue and profit growth.
For investors who were on the sidelines going into the report, is it too late to buy shares? This is a timely question because, although the stock is up from recent lows, it’s still well below its high of $1,064.50 achieved earlier this year. Are shares of the streaming service specialist attractive at a price of around $1,000?
Another strong quarter
Netflix shocked investors last quarter when it reported a year-over-year revenue growth rate of 16% for the period. Even more impressive was its earnings per share of $4.27 — up from $2.11 in the year-ago quarter. Many investors, however, were likely skeptical that such strong momentum could persist. Indeed, the company guided for a notable deceleration in revenue growth in the first quarter of 2025. Specifically, management said it expected revenue to increase by 11.2% year over year.
Yet, here we are with another quarter of surprising growth. The company’s top line grew by 12.5% year over year to more than $10.5 billion, a lower but still impressive growth rate compared to the previous quarter.
More importantly, however, Netflix’s operating margin came in at 31.7%, up from 28.1% in the year-ago quarter. This put earnings per share at $6.61, up from $5.28 in the same quarter last year. Management cited higher-than-forecasted subscription and ad revenue as the primary reason for outperforming its expectations at the start of the quarter.
The icing on the cake
But we haven’t even gotten to the best part. The juiciest figures were management’s guidance for its second quarter of 2025. The company stated that it expected second-quarter revenue to grow at an even faster rate than it did in the first quarter of 2025. Specifically, management guided for revenue to rise 15.4% year over year to more than $11 billion. Making this figure even more impressive, Netflix’s second-quarter revenue outlook calls for 17% year-over-year top-line growth on a constant currency basis.
Oh, and one more thing: The streaming service company is guiding for its second-quarter operating margin to come in at 33.3% — more than 6 percentage points higher than the year-ago quarter. Management’s optimism is bolstered by the fact that the company is expected to see “the full benefit from recent price changes,” as well as further growth in subscribers and advertising revenue, management explained in the company’s first-quarter letter to shareholders when discussing its second-quarter outlook.
With such strong fundamentals, it might be tempting to buy the stock following Netflix’s most recent earnings report. But exercising some caution might be a good idea. Shares are far from cheap. Based on the company’s most updated trailing-12-month earnings per share figures, the stock still trades at a price-to-earnings multiple in the high 40s. A valuation like this prices in not only strong growth in 2025 but also exceptional bottom-line performance for years to come.
Of course, Netflix’s history of growth and its continued execution on key growth initiatives, such as advertising and live programming, suggest that the company will likely continue to grow at impressive rates for years to come. But investors may want to consider leaving some room for error when buying individual stocks. In other words, investors should aim to buy stocks when they appear undervalued — not fairly valued. After all, no one knows with certainty what the future holds, so it’s best to plan for some unexpected detours.
As far as what this latest report means for those who already own the stock, it’s nothing but good news. While shares may not be cheap enough to create an attractive entry point today, they’re not so expensive that Netflix shareholders should sell. These latest results confirm the long-term bull case for shareholders.
Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
