Netflix Inc (NASDAQ:NFLX, ETR:NFC) is heading into its second quarter earnings report amid a shift in investor sentiment to greater caution as the stock trades near a five-year high, according to analysts at Jefferies.
The analysts remain bullish on the streaming giant, repeating their ‘Buy’ rating and $1,400 price target, which represents upside of 12% from current levels.
They see a clear runway for continued growth over the next 12 months, driven by multiple catalysts including monetization from advertising, pricing power, and a stronger second-half content lineup.
“We continue to see a favorable set-up over the next 12 months, as recent US price hikes, a strengthening second-half content slate, and improving ads monetization sustain mid-teens revenue growth in second half 2025 and fiscal year 2026,” the analysts wrote in a note.
Jefferies expects management to raise its full-year 2025 guidance along with the release of its quarterly earnings, specifically boosting its profitability guidance.
“We believe an increase in the fiscal year 2025 operating margin guide to 30%+ could act as an additional positive catalyst for the stock,” they wrote.
Currently, the Street expects 2025 revenue of $44.5 billion, the top end of the company’s guidance range of $43.5 billion to $44.5 billion, with an operating margin of about 29.5% versus the company’s 29% guidance.
Jefferies sees upside in the margin guide based on first-half trends. “Netflix’s second quarter guide implies a first-half operating margin of 32.6% versus the prior year of 27.7% (up 490 basis points),” they wrote.
“The fiscal year guide implies the second-half margin would be flat year-over-year, despite full-year revenue growth of 14% year-over-year and content spend growth of approximately 9% year-over-year.”
On top of that, the analysts noted that foreign exchange should be a major tailwind with the US dollar index down 7% from the end of the first quarter.
While some investors worry that a heavy second-half content slate and additional ad roll-out costs could weigh on profitability, Jefferies believes these concerns may be overdone.
“Investors seem to be positioned for an operating income guide raise to 30%+,” they wrote. “As discussed, the second-half implied guide seems conservative given the pace of revenue growth versus content spend.”
On the other hand, the analysts noted that: “The counter argument would be that this year's slate is second-half heavy compared to the prior year, which could weigh on margins as well as the increased costs associated with the ad roll-out. It may be a mix of the two, with the second-half guide being too conservative, but second-half content costs limiting upside on a guide revision.”
The analysts also highlighted the importance of recent and upcoming content.
“We would highlight Squid Game 3, which was the first show to debut No 1 in every available country (released end of second quarter), Wednesday in August/September (best weekly viewership excluding Squid Game), with Stranger Things and NFL to wrap up the year,” they wrote.
Jefferies concluded: “We remain 'Buy' as Netflix is strongly positioned in streaming, ads drive the longer-term upside, and as the company rolls out its best content slate in recent years.”