Netflix Earnings Preview: A Diamond in the Magnificent 7 Rough

Amid Wall Street volatility, most “Magnificent 7” stocks have suffered violent drawdowns thus far in 2025. However, Zacks Rank #3 (Hold) stock Netflix (NFLX) has bucked the market weakness ahead of its Q1 earnings release on Thursday. While Netflix is consistently overlooked versus its big tech peers, there are five key reasons investors should not forget about the leading streaming giant, including:

1. Netflix is Mostly Immune from Tariffs

A centerpiece of President Donald Trump’s second term is to decrease reliance on the international market, decrease (and ultimately balance) trade deficits, and make trade fairer for the United States. However, the Trump Administration’ssomewhat confusing and everchangingtariff policy isone of the most signficant question marks for “Magnificent 7” stocks like Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), and Tesla (TSLA). Each of these companies has significant production and parts sourced from overseas, subjecting them to tariffs.

Netflix, on the other hand, is the only big tech stock that is largely unaffected by the uncertainty surrounding the current trade policy. Digital services like Netflix are currently not a top priority for the Trump Administration because the United States already enjoys a large trade surplus in digital services. In addition, digital goods are not beholden to tariffs under the World Trade Organization (WTO) policy.

2. Netflix is the Fastest Growing Mag 7 Name

Last quarter, Netflix earnings bolted 102% year-over-year, making it the fastest-growing Mag 7 name. Despite intense competition from Amazon’s Prime, Alphabet’s (GOOGL) YouTube TV & YouTube Premium, and the Disney (DIS) Plus streaming services, Netflix’s management has done a masterful job of growing the company. Here’s how:

• Password Sharing Crackdown: For years, Netflix customers enjoyed a loophole that allowed them to share Netflix subscriptions with friends. However, in mid-2023, Netflix finally cracked down on password sharing. The results? NFLX recorded its highest use acquisition days in history.
• Content Powerhouse: Against all odds, Netflix has transformed from a streaming service to a major movie studio with wildly popular “Netflix Originals” like Bird Box andThe Irishman. Over the past few years, Netflix has capitalized further by investing more money into originals and attracting well-known Hollywood stars. In addition, Netflix is attracting broader viewership through regional programming bolstered by partnerships with Verizon (VZ) and AT&T (T).
• International Growth: In recent quarters,Netflix has expanded its international footprint to markets like India Mexico, and Spain. As Netflix slowly attracts new customers its international advertising revenue should soar.
• Higher Prices: In January, Netflix increased prices on its standard, ad-free, premium ad-free, and extra member subscriptions. Though consumers never like paying higher prices, Netflix’s broad and expanding content library gives the company best-in-breed pricing power.

3. Netflix’s Historically Low Valuation

Though NFLX shares have performed well over the past few years, shares are cheap. NFLX’s price-to-earnings ratio of 46.96x means shares are hovering near their “cheapest” levels over the past decade. While a 46 p/e may seem high to investors, context is essential. Because Netflix  highest and most consistent growth versus “Mag 7” names, investors are willing to pay a premium.

4. Netflix Exhibits Relative Strength

The best time to look for long-term RS opportunities is within a bear market. New, inexperienced investors tend to get frustrated and give up during bear markets. Conversely, savvy investors understand that bear markets present easily identifiable extremes. Because 75% of stocks follow the general market’s direction, you would expect most stocks to fall amid tariff concerns. However, NFLX shares have recently decoupled from the Mag 7 and the general market. While all Mag 7 names and the Nasdaq 100 Index (QQQ) are stuck below their 200-day moving averages, NFLX has carved out a picture-perfect double-bottom base structure above it – a sign of relative price strength.

5. Bullish Earnings Surprise History

Netflix has a bullish earnings surprise history, beating Zacks Consensus Analyst Estimates for four consecutive quarters.

Though NFLX is positioned well, there are some concerns on the bearish side. First, Wall Street analysts have soured on the company over the past few months, leading to a negative Zacks Earnings Expected Surprise Prediction (ESP) score. Second, the general market environment remains uncertain.

Bottom Line

While most “Magnificent 7” and big tech stocks have experienced significant declines amidst Wall Street’s volatile start to 2025, Netflix stands out as a resilient performer ahead of its upcoming Q1 earnings report on Thursday. This strength is due to several factors, including its insulation from tariffs, leading growth rate, historically low valuation, relative price strength, and consistent earnings surprise track record.

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This article originally published on Zacks Investment Research (zacks.com).

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