Netflix Rides on Strong Advertising Revenues: More Upside Ahead?

Netflix NFLX has entered a new phase of growth, and one of the biggest drivers behind it is its rapidly expanding advertising business. Once known as a subscription-based platform, the company now successfully combines subscriptions with advertisements, and the results are already showing strong momentum.

Netflix’s advertising business is still relatively new, but it is growing extremely fast. In 2025, advertising revenues jumped 2.5 times, totaling $1.5 billion. This was achieved in just the third year of advertisements being introduced. This kind of growth shows that Netflix has quickly built a strong position in digital advertising, competing with major platforms.

The strong growth in advertising revenues is driven by Netflix’s expanding subscriber base and engagement level. The company has more than 325 million paid subscribers and reaches nearly one billion viewers globally, which gives advertisers access to a massive audience. Netflix uses AI to help advertisers create customized advertisements, improve targeting and campaign planning, and deliver more relevant ads to viewers. The company believes that its platform receives less than 10% of TV time in all major markets where NFLX operates and accounts for about 7% of the addressable market in terms of consumer and ad spending. This presents a massive growth opportunity for Netflix.

For 2026, Netflix expects revenues between $50.7 billion and $51.7 billion, suggesting 12-14% year-over-year growth, with a targeted operating margin of 31.5%. Advertising revenues are projected to roughly double again in 2026 to $3 billion and will be a key contributor to total revenue growth.

NFLX’s Margin Under Pressure Amid Stiff Competition

Netflix’s operating margin is expected to face pressure from higher upfront content expenses in the first half of 2026. The company expects to keep the content expense growth rate under check (slower) compared with revenue growth to boost margins. Stiff competition from the likes of Disney DIS and Amazon AMZN is expected to hurt NFLX’s profitability.

Disney’s unparalleled IP portfolio, spanning Marvel, Star Wars, Pixar and classic animation, provides sustainable competitive advantages and multiple revenue monetization opportunities across streaming, theatrical, parks and merchandise. In the first quarter of fiscal 2026, streaming revenues, excluding Hulu + Live TV and Fubo, grew 11% year over year to $5.35 billion. Streaming reported an operating margin of 8.4%.

Amazon’s Prime services demonstrated robust momentum in the fourth quarter of 2025, with subscription services revenues reaching $13.1 billion, representing 14% year-over-year growth. Prime Video's global ad-supported audience grew to 315 million viewers from 200 million at the start of 2024. A strong content portfolio drove Prime Video’s popularity.

NFLX’s Price Performance, Valuation & Estimates

Shares of Netflix have declined 3% year to date, outperforming the broader Zacks Consumer Discretionary sector’s fall of 8.4%

NFLX’s Price Performance

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From a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-sales multiple of 7.3X compared with the broader sector’s 2.27. NFLX carries a Value Score of C.

NFLX’s Valuation

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The Zacks Consensus Estimate for NFLX’s 2026 earnings is pegged at $3.14 per share, up a couple of cents over the past 30 days. This indicates a 24.1% increase from the figure reported in the year-ago quarter.

Netflix, Inc. Price and Consensus

Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote

NFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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