Netflix Earnings Preview: Price Hikes, AI and Cash Flow in Focus

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In response to Netflix not disclosing their subscriber numbers during their Q1 results in April, there was a calm reaction from Wall Street. Now, analysts are preparing themselves for the announcement of Netflix’s Q2 results, which they will reveal after the stock market closes on Thursday, July 17.

The effects of recent price increases – with the ad-tier now costing $7.99 per month in the U.S., up from the previous $6.99, and the premium tier’s cost increasing by $2 to $24.99 – are under scrutiny, along with its expanding cheaper advertising tier and its latest and upcoming movies and TV shows, for analysts on Wall Street.

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The consequences of recent price increases – such as raising the ad-tier to $7.99 per month in the U.S., an increase from $6.99, and boosting the premium tier’s cost by $2 to $24.99 – are being examined, together with its growing advertising tier at a lower price point and its current and upcoming film and TV projects, by Wall Street analysts.

A significant number of financial analysts have raised their predicted share prices for Netflix, primarily driven by the joint CEOs, Ted Sarandos and Greg Peters. This comes after Netflix’s stocks have seen a rise of approximately 40% in value throughout the year.

According to analyst Mark Mahaney from Evercore ISI, Netflix is considered one of the least risky stocks for this quarter. He keeps his ‘outperform’ rating and sets a $1,350 price target. In his quarterly earnings preview, he considers the current revenue, operating income, and earnings per share estimates as reasonable. Although the Street’s projected 5% growth in revenue for the second quarter is higher than usual (flat to +2% over the past three years), Mahaney highlights that Netflix may benefit from a substantial sequential foreign-exchange advantage and the full-quarter effects of recent price increases in certain markets. Additionally, he points out that Netflix has consistently surpassed its revenue and operating income expectations in recent times.

Mahaney also identifies five key advantages:

1. Insights gained from our mid-May meeting with Netflix executives, which revealed that their global monthly advertising viewers had surpassed 94 million.
2. The results of our survey conducted in late May within the U.S. and U.K., which demonstrated generally positive trends in customer satisfaction in both regions, as well as clear evidence of Netflix’s dominance in content quality leadership.

The expert additionally highlighted his analysis of ads, stating that Netflix had surpassed a significant trustworthiness/handling capacity benchmark for marketers, and emphasized the incredibly powerful release of the Squid Game finale on Netflix towards the end of June – boasting unmatched and record-breaking views (60 million in just 3 days), global rankings (#1 in 93 countries), and social media impressions (4.56 billion).

Another potential positive aspect worth considering is Manahey’s point about Netflix’s top 10 viewership figures, which indicate an exceptionally high level of user engagement during the second quarter. This engagement appears to have grown significantly faster compared to the first quarter, as suggested by a noticeable increase in viewing hours.

Wedbush Securities analyst Alicia Reese kept her optimistic stance and recommended $1,400 as the potential stock price for the company in her earnings preview report this week. In her analysis, she highlighted that since Netflix no longer shares its subscriber growth numbers, the spotlight has moved towards quarterly targets, but instead is now on the overall financial performance and strategic outlook of the company. Reese suggests that investors have likely already accounted for a slight surplus in earnings and an increase in full-year 2025 guidance forecasts.

She continues to be optimistic about the future. While substantial subscriber growth was the main factor for success in 2024, we anticipate price hikes to fuel revenue growth in 2025, and the ad-tier to further boost income in 2026, as Reese pointed out. As Netflix expands, its profit margin could significantly surpass our predictions, leading to considerable free cash flow excess.

According to analyst Brian Pitz from BMO Capital Markets, AI presents a valuable opportunity for Netflix. In a recent report that maintained his “buy” recommendation and increased his projected share price from $1,200 to $1,425, he argued: “We think Netflix stands to benefit significantly from AI in terms of content creation and cost savings, opening up a multi-year opportunity for enhanced operating income.

He went on to say: “The advantages of AI are starting to spread out, offering numerous benefits over the next few years due to the massive number of ‘hundreds of billions’ of interactions worldwide. These AI tools are expected to work harmoniously with existing computer-generated imagery (CGI) and visual effects (VFX) products. They will streamline production processes, increase creator potential, and boost user interaction.

Pitz has increased his projected 2025 second-half revenue and earnings, this adjustment is based on exceptional viewing figures for “Squid Game” Season 3, currency fluctuations, and a compelling lineup of content scheduled for release during the latter part of the year.

As we approach the latest financial report, analyst Laura Martin from Needham & Co. has raised her predicted price for Netflix shares from $1,126 to an impressive $1,500. She maintains her “buy” recommendation and outlines the aspects she appreciates about Netflix.

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Analyst Laura Martin of Needham & Co. increased her Netflix share price target from $1,126 to $1,500 ahead of the upcoming earnings report, keeping her “buy” rating and highlighting her positive views on Netflix.

In terms of strategy, she finds the following aspects of the streamer particularly appealing:

1. The global reach of Netflix, which could boost its earnings and content investments.
2. Price hikes, either directly or by tightening rules on account sharing, to increase revenue.
3. Greater collaboration with other services to reduce customer cancellations (churn rate).
4. Advertising, as it tends to speed up revenue growth and improve profit margins due to its 75% incremental profits.
5. Lastly, she believes that the integration of generative AI will likely advantage tech-centric companies like Netflix.

Netflix’s financial appeal lies in its consistent content spending, ranging from $17 billion to $18 billion. This is because Netflix has pledged that its cash spent on content will roughly match the amount it amortizes, keeping the free cash flow more predictable. Moreover, Netflix has indicated that it plans to utilize its growing free cash flow to repurchase shares instead of paying down debt (now that they have achieved investment grade status). This strategy serves as a sort of support for the share price, reducing potential risks by maintaining a relatively stable floor.

Bank analyst Jessica Reif Ehrlich had previously raised her price prediction for Netflix at the end of May. Maintaining her “buy” recommendation, she bumped up her target to an impressive $1,490 in a report titled “Strategies for Attack and Defense in Media.

The analyst believes that Netflix remains a strong choice due to its dominance in streaming, potential for more user expansion, promising prospects in advertising and live events, and ongoing profitability and cash flow increases. Backed by its renowned brand, extensive global subscriber base, pioneering status, and clear focus on growth factors, the analyst predicts that Netflix will continue to excel compared to others.

Reif Ehrlich, the analyst, enthusiastically endorsed Netflix’s upcoming programming schedule for the second half of 2025, labeling it a “content feast.” He contended that this lineup boasts an exciting combination of popular originals, sequels or continuations of franchises, and concluding episodes, along with a balanced selection of live and sports content to boost ad-supported viewership. In his opinion, the comeback of Netflix’s top three watched series – Squid Game on June 27th, Wednesday on August 6th, and Stranger Things in the second half of 2025 – coupled with new productions such as Guillermo del Toro’s Frankenstein, Adam Sandler’s Happy Gilmore 2, and Tina Fey’s The Four Seasons, will foster strong viewer retention and subscriber growth.

In his second-quarter earnings forecast, TD Cowen analyst John Blackledge highlighted an impressive lineup of upcoming events, which he referred to as a “monster” schedule. Maintaining his optimistic outlook on the stock, he increased his price target from $1,325 to a higher $1,440.

According to our second-quarter survey, it appears that Netflix is successfully asserting its pricing strength following the price increase in January. To clarify, this price hike was implemented in the U.S., Canada, Portugal, and Argentina during this time, a move that should boost the average revenue generated from each member.

Blackledge anticipates an impressive lineup of TV and movie releases in the second half of this year, featuring popular titles like ‘Wednesday’ starring Jenna Ortega and the long-awaited fifth season of ‘Stranger Things’. Notably, ‘Squid Game’ resumed at the end of Q2, which should drive viewership in Q3. In essence, Netflix seems to be primed for a strong second half in 2025 as well.

Analyst Jeffrey Wlodarczak, working for Pivotal Research Group, continues to be the most optimistic about Netflix among Wall Street analysts. He recently upped his projected stock price for the streaming service from $1,350 to a record-breaking $1,600, while maintaining his “buy” recommendation. The factors behind this increase include shifting his year-end prediction from 2025 to 2026 and growing confidence in Netflix’s strong market positioning.

Netflix, on a global scale, still holds significant untapped potential. Its exceptional value for entertainment continues to grow, enhanced by the introduction of their ad-supported service, which should sustain robust subscriber growth and average revenue per user (ARPU). This combination of factors, including price increases, increased advertising, and partially offsetting lower ARPU in developing markets, presents a potent advantage.

In summary, “Netflix has clinched the global lead in premium streaming content. To maintain this position, Netflix management should capitalize on their current advantages by sustaining the subscriber/revenue per user (ARPU) cycle. As they grow bigger, they gain leverage over competitors and content creators, which in turn improves their product, attracts more users, and increases revenue. This increased revenue can then be reinvested in creating compelling content, further fortifying their business model.

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2025-07-16 15:25