Netflix's Ad-Sales Breakthrough and JPMorgan's Cautious Outlook: Is Now the Time to Buy NFLX?

Netflix's Q2 2025 earnings report painted a picture of a company in motion. Revenue surged 16% year-over-year to $11.08 billion, driven by a combination of price hikes, subscriber growth, and a rapidly scaling advertising business. The streaming giant raised its full-year revenue forecast to $44.8–$45.2 billion, a $1.3 billion upward revision, citing a weaker U.S. dollar and “healthy” ad sales. Yet, beneath the headline numbers lies a nuanced story: one of tangible progress in monetizing its ad platform, tempered by Wall Street's skepticism about whether the stock's stratospheric valuation justifies the optimism.

The Ad-Sales Momentum: A Maturing Model

Netflix's ad-supported tier now accounts for 30% of its global paid subscriber base, with 92.5 million users opting for the $7.99/month plan. This growth is not merely a function of price sensitivity but a strategic pivot to capture advertisers seeking access to a highly engaged, global audience. The company's in-house ad tech platform, the Netflix Ads Suite, has been fully rolled out across 12 markets, enabling real-time targeting, programmatic buying, and innovative formats like interactive ads. Early results are promising: upfront ad sales are “nearly complete,” with the “vast majority” of deals locked in, and the company expects ad revenue to roughly double in 2025 compared to 2024.

This progress is underpinned by Netflix's content-driven engagement. The return of Squid Game Season 3 and the final run of Stranger Things have not only boosted subscriber retention but also created premium ad inventory. Live events, such as the NFL Christmas Day game and UFC fights, are further diversifying the ad mix. Analysts like JPMorgan's Doug Anmuth note that these initiatives are “foundational” to scaling ad revenue, with the potential to triple from $3 billion in 2025 to $9.6 billion by 2030.

JPMorgan's Cautious Stance: A Stock at a Premium

Despite the business momentum, JPMorgan maintains a “Hold” rating on Netflix, with a $1,300 price target. The firm acknowledges the ad revenue potential but argues the stock is already priced for perfection. At 34 times 2027 GAAP earnings and 38 times free cash flow, Netflix trades at a premium to peers like Disney and Amazon, which are valued at 22x and 28x, respectively. Anmuth highlights that the stock has surged 400% since October 2022, reflecting much of the projected upside.

The caution is not unfounded. Netflix's decision to stop reporting quarterly subscriber numbers—a move to focus on financial metrics—has left investors without granular data to assess growth. While the company cites “late-quarter” subscriber gains in Q2, the lack of transparency raises questions about the sustainability of its momentum. Additionally, the ad business, though growing, remains a small portion of revenue (estimated at 7% in 2025). Scaling it to a material contributor will require overcoming advertiser skepticism about measurement and attribution, despite partnerships with Nielsen and iSpotTV.

Weighing the Risks and Rewards

The investment case for Netflix hinges on two key factors: the execution of its ad monetization strategy and the valuation discount for risks. On the former, the company has made credible strides. The Netflix Ads Suite is a robust platform, and the ad tier's 30% penetration suggests strong consumer acceptance. The integration of Yahoo DSP and plans for AI-driven ad personalization by 2027 further enhance long-term potential.

However, the risks are significant. The ad market is competitive, with platforms like YouTube and Hulu already entrenched. Netflix's focus on premium content may not translate to ad effectiveness, particularly for brands seeking broad reach. Moreover, the stock's current valuation assumes continued margin expansion and a doubling of ad revenue—a scenario that hinges on execution in a volatile macroeconomic environment.

Is Now the Time to Buy?

For investors with a long-term horizon, Netflix's ad-driven model offers compelling upside. The company is transforming from a subscription-centric business to a diversified platform capable of generating revenue from both users and advertisers. Its content library, global reach, and technological innovation position it to capture a growing share of the $1.2 trillion digital ad market.

Yet, the current valuation reflects high expectations. A “Hold” rating from JPMorgan and similar caution from others suggest that the stock may be overbought in the near term. For conservative investors, waiting for a pullback—triggered by seasonal weakness or a post-Upfront event lull—could offer a better entry point. For those comfortable with risk, a small position in NFLX could serve as a hedge against the long-term growth of streaming advertising, provided it is balanced with more defensive assets.

In the end, Netflix's ad business is a work in progress. The question is not whether it can succeed, but whether the market is already pricing in that success. For now, the answer leans toward caution—but not dismissal. The maturing of its advertising model could yet prove to be the catalyst that justifies the optimism.