Netflix (NFLX) topped second quarter earnings expectations and raised its full-year revenue outlook, but that wasn’t enough to impress investors. Shares slipped more than 4% shortly after the opening bell on Friday as the results failed to clear the high bar set heading into the report.
“Despite a good quarter and positive tone that business trends remain strong, shares are up 42% year-to-date and expectations were high,” William Blair analyst Ralph Schackart wrote in a note titled “Good Quarter, but Tough to Surpass High Expectations.”
“In other words,” he added, “An overall ‘good’ set of results and guide were not good enough for elevated expectations, in our view.”
Some on Wall Street had warned that Netflix’s lofty valuation left little room for error. The stock trades at roughly 40 times forward earnings, a steep premium to the broader market and even many of its tech peers.
Netflix reported second quarter revenue of $11.08 billion, up 17.3% year over year and above the company’s prior guidance of $11.04 billion. Earnings per share (EPS) came in at $7.19, topping Netflix’s forecast of $7.03 and up from $4.88 a year ago.
Looking ahead, Netflix issued upbeat guidance for the current quarter. The company expects revenue to hit $11.53 billion, topping analyst estimates of $11.28 billion. EPS is also projected to come in above expectations at $6.87 versus the $6.70 analysts had anticipated.
For full-year 2025, Netflix now expects revenue between $44.8 billion and $45.2 billion, up from its prior forecast of $43.5 billion to $44.5 billion.
“The majority of the increase in our revenue forecast reflects the recent depreciation of the US dollar vs. most other currencies, with the balance attributable to continued business momentum driven by solid member growth and ad sales,” the company said in the earnings release.
Foreign exchange had already been expected to serve as a tailwind heading into earnings. Since the start of the year, the US Dollar Index (DX-Y.NYB), which tracks the dollar’s value against a basket of major currencies, has declined roughly 10%.
Executives have pointed to the ad-supported tier as a longer-term driver of user growth and noted on the earnings call that ad sales are showing “nice momentum.” The company expects ad revenue to roughly double to about $3 billion in 2025.
Earlier this year, Netflix hiked prices across several plans in the US, including the ad plan, which still remains one of the cheapest tiers on the market at $7.99 per month.
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In May, Netflix announced its ad-supported tier has reached 94 million global monthly active users, an increase from 70 million in November.
“Similar to last quarter, we’re carefully watching consumer sentiment in the broader economy,” Netflix co-CEO Greg Peters said on the earnings call. “But at this point, really nothing significant to note in the metrics and the indicators that we get directly through the business.”
Peters said retention remains “stable and industry-leading,” with recent price hikes performing in line with expectations. He added that overall user engagement remains healthy, reinforcing Netflix’s confidence in its monetization strategy.
A performer dressed as a ‘Squid Game’ soldier stands in front of the Netflix and ‘Squid Game’ logos before a parade through central Seoul, South Korea, to celebrate the release of the third season of Netflix’s hit series on June 28. (Reuters/Kim Soo-hyeon) ·REUTERS / Reuters
That momentum could be further supported by the company’s upcoming content slate.
Netflix is set to roll out new seasons of hit series like “Wednesday” and “Stranger Things,” while “Squid Game,” which debuted late last month, has been a top-performing show on the platform. Among major streamers, Netflix continues to lead with the lowest subscriber churn, suggesting high user stickiness.
Additionally, live events and sports programming, such as the recent Taylor vs. Serrano fight, upcoming NFL Christmas Day games, and weekly WWE Raw, could further boost engagement, attract ad dollars, and support subscriber growth. Speculation has also been building around whether the UFC could be the next major sports property to land on Netflix.
Overall, Netflix said it expects content and marketing expenses to ramp up in the third and fourth quarters. Still, the company anticipates year-over-year growth in operating margins for both periods and remains on track to deliver strong full-year margins of 30%, one percentage point higher than its previous guidance.
And when it comes to M&A, don’t expect Netflix to make any deals as legacy media starts to consolidate.
“We’ve historically been more builders than buyers and we continue to see big runway for growth without fundamentally changing that playbook,” Netflix CFO Spencer Neumann said on the call. “We’ve been pretty clear in the past that we also have no interest in owning legacy media networks.”
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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