Will Strong Pricing & Ad Growth Lift NFLX's Margins and Drive Upside?

Netflix NFLX continues to demonstrate the strength of its pricing power and advertising momentum in driving profitability. Management raised its full-year 2025 operating margin guidance to 30%, up from 29%, citing robust pricing, ad growth and favorable FX trends. This follows a strong second quarter, where the operating margin expanded 700 basis points year over year, driven by disciplined cost management and a rising mix of premium and ad-tier subscribers.Netflix’s pricing strategy remains a key profit driver, supported by recent subscription hikes in key markets like the United States and Canada, where plans range from $7.99 to $24.99 per month. Its ad-supported tier has also become a strong growth engine, now reaching 94 million monthly active users. Management expects ad revenues to double in 2025, driven by the rollout of the Netflix Ads Suite and integration with Yahoo DSP.Netflix is expanding globally by adjusting prices for markets like India and using generative AI to create more personalized ads. It’s also adding new ad formats like interactive mid-rolls, pause ads and live events such as WWE Raw and NFL Christmas Day games to attract premium advertisers. New interactive ad options launching in late 2025 will further boost engagement and diversify revenues. Meanwhile, blockbuster titles like The Beast in Me (Nov. 13), Stranger Things (Nov. 26) and Wake Up Dead Man: A Knives Out Mystery (Dec. 12) are set to keep engagement high, reinforcing the strength behind its pricing and ad strategy.Reflecting this momentum, Netflix raised its 2025 revenue forecast to $44.8-$45.2 billion, up 15-16% year over year, while the Zacks Consensus Estimate projects 16% growth in 2025 and 13% in 2026.Netflix’s Ad & Pricing Battle: Key U.S. PlayersAmazon AMZN is rapidly expanding its advertising dominance by integrating Prime Video, Twitch and its vast retail data into a unified ad ecosystem. With retail media revenues projected to surpass $60 billion in 2025, Amazon leverages e-commerce insights and Prime’s reach to offer powerful targeting and competitive pricing. Amazon's growing ad presence in streaming strengthens its edge over rivals, though balancing ad load and user experience remains crucial.Warner Bros. Discovery WBD is strengthening its streaming edge through a dual monetization model, expanding its ad-supported Max tier while raising ad-free prices to boost profitability. WBD’s 125.7 million subscribers and $1.3 billion streaming profit goal for 2025 highlight strong momentum. Leveraging its vast IP library, WBD’s tiered pricing and Disney bundle strategy position it competitively against Netflix in ad growth and subscriber expansion.NFLX’s Price Performance, Valuation & EstimatesShares of Netflix have gained 36.8% year to date compared with the Zacks Broadcast Radio and Television industry’s rise of 30.4% and the Zacks Consumer Discretionary sector’s return of 4.9%.NFLX’s YTD Price PerformanceImage Source: Zacks Investment ResearchFrom a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-earnings ratio of 39.46, higher than the industry's 30.39X. NFLX carries a Value Score of D.NFLX’s ValuationImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for NFLX’s 2025 revenues is pegged at $45.07 billion, reflecting 15.55% year-over-year growth. The consensus mark for 2025 earnings is pegged at $26.10 per share, up by a cent over the past 30 days. This indicates a 31.62% increase from the previous year.Image Source: Zacks Investment ResearchNFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Netflix, Inc. (NFLX): Free Stock Analysis Report Warner Bros. Discovery, Inc. (WBD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks