Netflix shares edged higher in early Tuesday trading as investors looked to the streaming media group’s fourth quarter earnings, and the likely boost from live sports and ad sales to its bottom line, after the close of trading.
Netflix (NFLX) , which recorded its strongest annual gain since 2015 last year as shares rose nearly 85%, has seen a late December pullback tied in part to the likely impact of as stronger U.S. dollar on its near-term profit outlook.
The group generated more than half its $9.83 billion in third quarter revenues from non-U.S. markets, and a firmer dollar makes those sales less valuable when their return home and converted into profit.
The U.S. dollar index, which tracks the greenback against a basket of its major currency peers, has risen nearly 8% since Netflix calibrated its 2025 revenue outlook of between $43 billion and $44 billion and is likely to strengthen further under the trade and tariff polices of President Donald Trump and a higher-for-longer inflation forecast from the Federal Reserve.
That’s likely to weigh on profits into next year and possibly cloud the impact of a solid fourth quarter that is expected to include 9.2 million new subscribers and record quarterly revenues of $10.11 billion.
Live sports boost
Netflix, which introduced is ad-based streaming tier in November of 2022, is expected to generate around $528 million in sales from the platform over the three months ending in December, with revenues likely passing the $2 billion mark by the end of next year.
Live sports has been a key component of the ad-based growth, with some 60 million viewers entering the platform to watch the Jake Paul/Mike Tyson boxing match in November and around 26.5 million for the Christmas Day NFL match-up between the Kansas City Chief and the Pittsburg Steelers.
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“Netflix started small with originals and scaled up investment as it saw subscriber interest,” said KeyBanc Capital Markets analyst Justin Patterson, who carries a $1,000 price target and an ‘overweight’ rating on the stock.
“With Netflix subscribers clearly interested in live content, we are curious to see which other events can be acquired at reasonable prices.”
What investors won’t hear, however, is any direct commentary on subscriber growth, as Netflix will no longer publish forecasts based on net additions under its new reporting structure.
Ad sales key to Netflix growth
That said, Wall Street expects December-quarter additions of 9.2 million, an 80% increase from the prior period but a 32% decline from the same period in 2023.
In terms of its bottom line, analysts see Netflix posting earnings of $4.20 per share compared to $2.11 per share over the prior-year period.
Mike Proulx, research director at Forrester, sees ad revenues overtaking subscriber gains as the key investor focus heading into 2025.
“Streaming platforms are all feverishly chasing ad dollars as an accelerator of revenue growth,” said Proulx. “It’s no secret that live programming with mass audiences lures big brands to spend. In 2025, we will see more ad formats, brand partnerships, and ad tech features as Netflix looks to reach ‘critical scale’.”
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Patterson of KeyBank is also optimistic, adding that foreign exchange risk to its profit outlook can be mitigated in part by its broader market leadership in the global streaming market.
“Relative to the larger ad names, Netflix also is less exposed to cyclical trends (the ad business is still being built out, and the ad-free product has pricing power), is a market leader in an industry that is consolidating, and does not face meaningful generative AI risk,” he said.
Price increases on the cards?
Another key aspect to the earnings release, and the management commentary that will follow it, will be any discussion of price increases over the coming year.
Netflix currently pegs its standard, ad-supported tier at $15.49 per month, with analysts expecting a springtime boost to both improve profit margins and offset the costs linked to purchasing live sports rights.
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“We acknowledge Netflix is executing significantly better than other media companies with major global scaling advantages even if the stock appears overpriced to us in a momentum market,” said Benchmark analyst Matthew Harrigan in an early January note that lifted his price target to $720 per share but maintained a ‘sell’ rating on the stock.
“Top line and profitability growth will increasingly depend on pricing and newer initiatives such as AVOD as paid sharing benefits subside,” he added.
Netflix shares were marked 0.8% higher in premarket trading to indicate an opening bell price of $865.50 each.
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