Should You Buy Netflix Right Now While It's Below $1,000?

As of this writing, shares of Netflix (NFLX) trade at all-time highs, but is it still a good time to buy this top streaming service stock while it's below $1,000? Let's dive into the key factors contributing to Netflix's continued subscriber growth and revenue expansion, and explore the sustainability of these trends.

First-mover advantage

Netflix has come to dominate the streaming industry thanks in large part to its first-mover advantage. When competitors were still focused on their traditional cable TV networks in the 2010s, Netflix invested aggressively in its content slate, technology, and marketing to acquire customers at a rapid clip. Now, it's reaping the financial rewards.

In 2024, the company posted an operating margin of 27%, up from just 13% five years earlier in 2019. The leadership team expects that figure to expand to 29% in 2025. This strong financial performance indicates that Netflix's business model is robust and capable of supporting continued growth.

New revenue driver

Sometimes, to boost growth, management teams will do things that they previously said they wouldn't do. This is precisely what Netflix's leadership team did. After years of saying they were unlikely to introduce ads to the streaming platform, executives finally changed their stance, with Netflix launching an ad-supported tier in November 2022.

This strategic move has been a huge success. The company's ad-based option is growing rapidly. In Q4 2024, Netflix saw a 30% quarter-over-quarter bump in ad members, with 55% of new customer sign-ups coming from ad-based plans in the countries that it's offered. Clearly, consumers are indicating they value the choice of having a lower-priced option.

Engagement between ad-supported plans and ad-free plans is similar, and Netflix is monetizing this engagement. "We've doubled our ads revenue year over year last year," co-CEO Greg Peters revealed on the Q4 2024 earnings call. This pace is much faster than the overall business. The forecast is for ad revenue to double again in 2025.

Netflix also turned down the idea of getting into live sports in the past. But again, management changed its mind. While they call it being in the live events space, it's easy to believe that Netflix will continue to invest more in this type of content. Besides the WWE, it locked up contracts to show NFL games on Christmas and the FIFA Women's World Cup in 2027 and 2031. This will drive more ad revenue over time.

Heightened expectations

Netflix shares have been a monster winner historically. That's not surprising, given the business completely upended the entire media industry by creating a streaming leader that continues to grow members, revenue, and profits at a strong clip. It's not a shock to anyone that the market is head over heels with Netflix.

However, prospective investors should be cautious about the stock's valuation. While Netflix's fundamentals are strong, the stock price has been driven up by high expectations. If the company fails to meet these expectations, the stock could face a significant correction.

In conclusion, Netflix's ad-supported tier, live programming, and continued investment in original content have driven subscriber growth and revenue expansion. While the stock may be overvalued at current levels, the company's strong fundamentals and growth prospects make it an attractive long-term investment. However, investors should be prepared for potential volatility and keep an eye on the company's earnings reports to ensure it continues to meet expectations.