Owning Netflix (NASDAQ: NFLX) has been nothing but a great time. In the past three years, shares have absolutely skyrocketed. As of April 28, they have climbed 481% since the same time in 2022. This is well ahead of the 43% total return of the Nasdaq Composite index.
A strong earnings report for the first quarter this year lifted the streaming stock higher in the past several days. It now trades in record territory, demonstrating just how bullish investors are even during heightened economic uncertainty.
After such an incredible performance, is Netflix a buy, sell, or hold in 2025?
Netflix deserves a standing ovation
Even after nearly two decades of pioneering the streaming industry as we know it today, the company continues to grow impressively. Netflix added 41 million net new subscribers in 2024. In the first quarter of 2025, it registered a 12.5% year-over-year revenue gain.
Wall Street consensus analyst estimates believe the top line will increase at a compound annual rate of 12.2% between 2024 and 2027.
Even with more than 300 million customers today, executives see big things in the future. Last July, co-CEO Greg Peters said there are more than 500 million smart-TV households around the world that aren't currently subscribers.
It's true that the media industry broadly -- and streaming specifically -- is very competitive. There is so much content fighting for viewers' attention that it might be hard to stand out. Netflix shines, though, given its top-notch programming that resonates with consumers.
According to data from Nielsen Holdings, Netflix commands 7.9% of daily TV viewing time in the U.S. This is second to YouTube, which is a different model because it's all user-generated content.
Competitive advantages that are strengthening
Netflix has durable competitive advantages that should minimize risk for shareholders. Credit first goes to the company's massive scale.
In this industry, having the financial resources to invest heavily in content is beneficial. Netflix plans to spend $18 billion in cash on content this year. But because of its huge subscriber and revenue base, it's better able to spread out these fixed costs.
The result is substantial earning power. Management believes the company will report a 29% operating margin in 2025. Showcasing the scalability of the business model, that key performance metric will be a rapid expansion from 18% in 2020. This has driven meaningful free cash flow (FCF).
The Netflix brand is also very powerful. It helps that the company disrupted an entire industry to the point that now its name is used interchangeably as a verb. That mindshare is hard to displace.
Owning the best businesses
It would be extremely difficult for anyone to argue that Netflix isn't an outstanding company. The critics have pointed to competition or lack of FCF, for example, as reasons to steer clear of the stock in the past. But these points have all proved to be wrong, as it has become a dominant force in the industry and has done nothing but take care of its shareholders.
Consequently, there are investors out there who only want to own the best businesses in the world. Focusing less on valuation and more on quality might work out, provided that these types of companies figure out ways to keep growing revenue and earnings.
As of this writing, Netflix trades at a price-to-earnings ratio of 51.8. This isn't cheap by any stretch of the imagination. But it might not be a deal-breaker for investors looking to add it to their portfolios. I can understand why buying shares, even near their all-time high, would be a possible decision.
This also means that holding the stock makes sense, too, if you remain bullish on the long-term trajectory of the business.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
