Netflix's Q1 Earnings Beat Expectations: Eyeing the Trillion-Dollar Market Cap Milestone, and a Hot Company for Wall Street Amidst Heavy Tariff Pressures

The first-quarter financial report of the US streaming platform Netflix (NFLX.US) released after the market on Thursday.

 

It shows that due to the strong growth of subscription and advertising revenues, the company's revenue and the second-quarter performance guidance both exceed analysts' expectations.

 

The quarterly profit has reached a record high, and it is expected that the advertising sales will double in 2025. The stock price once rose nearly 5% after the market.

Previously, Bloomberg said that the company may gradually become a safe-haven target for Wall Street under the tariff war.

 

Many investors can't help but wonder if it is time to buy Netflix now. Don't worry. Let's take a look together.

Netflix's financial report this time can be regarded as excellent.

 

It not only beat the expectations but also showed strong growth after the price increase, indicating the company's indispensable position in the hearts of users.

 

First of all, in terms of financial report data, the company's first-quarter financial report shows that the revenue has increased sharply to $10.54 billion, exceeding the expected $10.51 billion, and the earnings per share is $6.61, which is much higher than the expected $5.71.

Among them, the company's operating profit margin has increased significantly, soaring from 22.2% in the previous quarter to 31.7%.

 

This is the main reason for the company's profit to exceed expectations significantly.

The revenue growth benefits from the growth of subscription and advertising revenues.

 

The company revealed that the comprehensive price increase at the end of January this year did not scare away users.

 

The performance of the US, UK, and Argentine markets after this round of price increases met the company's expectations.

 

Therefore, the company decided to raise prices in France and included the revenue change in this part in the guidance consideration.

 

The advertising aspect has also obtained higher revenue, but the company did not disclose more details.

 

Although the subscription number is no longer disclosed in the first quarter, based on the actual revenue and the price increase situation in various regions.

 

 

Among them, the Eurasian region has a relatively large growth, mainly benefiting from the popular local content in the current season (the after-heat of "Squid Games 2", European movies such as "Ad Vitam" and "Counterattack", etc.).

 

However, the core region has entered a new round of price-increase cycle, which has a short-term impact on the user scale. For example, the revenue growth rate in the North American region has declined significantly.

It is worth mentioning that the ever-green drama "Black Mirror" Season 7 has been released on Netflix recently. Globally, the premiere rating of "Black Mirror" Season 7 is 668,000 households, which is 30% lower than the 952,000 households of the premiere of Season 6.

 

However, for an established IP that has been running for 6 years, this data is still quite good.

Ted Sarandos, the co-chief executive officer of Netflix, said in the financial report conference call: "Our business plan is consistent with external forecasts and performance guidance. Although we do not have specific forecasts or guidance for the five-year period, we are convinced that we are always committed to achieving long-term goals and building the most beloved and valuable entertainment company for all stakeholders every day."

Earlier this week, Netflix disclosed its internal plan, hoping to double its revenue and quadruple its operating profit by 2030, and its market capitalization is intended to hit the $1-trillion mark, which is still 140% higher than the current level.

The US stock market now highly depends on technology stocks to support its valuation. Although Amazon has the Prime business, it is generally not regarded as a company whose main business is entertainment.

 

Therefore, if Netflix reaches the $1-trillion level, it will be not only a major event for the company itself but also a milestone event for the US stock market.

Currently, Netflix's market capitalization is close to $400 billion, ranking about 18-19th among large companies.

 

This means that Netflix needs to more than double its market capitalization in the next five years to reach the $1-trillion goal.

To achieve this goal, Netflix's market capitalization needs to grow at a compound annual growth rate of about 16%, which means surpassing many market leaders. It is not easy for such a large-scale company.

 

At the same time, since the beginning of this year, Netflix has shown very good safe-haven properties.

 

From the beginning of the year to the present, the company has increased by 9.7%, while the Nasdaq has fallen by 15.6%.

Compared with media peers such as Disney and Warner Bros., Netflix is also standing out.

So why is Netflix so resilient? Some analysts analyzed and said: "Netflix is not directly impacted by tariffs.

 

Its user growth, profitability, and advertising revenue trends are strong. Its low-price packages have a low cost. Even in an economic recession, consumers will not easily cancel their subscriptions."

 

In addition, during the European debt crisis in 2012 and the epidemic in 2020, Netflix's user growth did not decline but increased instead, proving that entertainment is even more indispensable in a volatile economy, and Netflix has the strongest cost-effectiveness in it.

 

These factors are extremely scarce in the current environment, making Netflix a hot safe-haven target on Wall Street.

 

Although Trump's tariff stick has brought huge disturbances and put downward pressure on the high-valuation Nasdaq, especially for the targets that are more sensitive to the macro-environment, they will all face a double-kill of performance and valuation.

 

However, among them, the sensitivity of the streaming media is relatively low, and its actual performance is more easily affected by the content cycle fluctuation, unless the global economy falls into a deep recession.

 

Moreover, when the macro-environment uncertainty under the trade war increases, and the direct competitors are busy dealing with their main businesses (such as Amazon's e-commerce, Disney's parks, and Google's advertising), they will tend to tighten spending and control expansion again.

 

This will undoubtedly reduce the defensive pressure on Netflix.

 

 

At the same time, due to the great uncertainty brought about by this trade war, and Netflix is now and will be very dependent on the international market performance in the future (the user increment in the first quarter mainly comes from countries such as Japan, South Korea, and Indonesia in Asia, as well as Mexico in South America and Spain and France in Europe), it is not recommended to invest a large position.