Netflix Stock At $1,200: A Reality Check

Netflix stock (NASDAQ: NFLX) has been on a tear, rising by about 35% this year and by more than 70% over the past twelve months. The stock now trades at over $1,200. The big surge follows two smart moves Netflix made post the pandemic, namely cracking down on password sharing and rolling out a cheaper, ad-supported tier. Both have worked, lifting subscriber numbers and giving revenue a solid boost, with Q2 sales jumping 16% year-over-year. So things have clearly been going great. But here’s the catch  –  those levers are already in play across most markets, content costs are climbing, rivals aren’t sitting still, and the stock is now priced for perfection. When things are going this well, it’s easy for investors to believe the momentum will last forever. That’s exactly when risks tend to get ignored.

Image by Souvik Banerjee from Pixabay

Subscriber Growth Surges, But Risks Loom

In 2024 alone, Netflix added over 40 million subscribers, pushing its paid subscriber base to nearly 302 million, the largest annual increase in its history. The password-sharing crackdown pushed users to either pay extra for the additional subscriber or sign up independently. Additionally, the ad-supported tier, offering a more affordable entry point, has seen strong adoption, with over half of new subscribers in eligible regions choosing this plan as of the most recent quarter. These shifts unlocked new revenue streams and reignited growth after a post-pandemic plateau. Yet concerns are mounting about what comes next. With both levers already rolled out in major markets, sustaining the same pace of subscriber additions could prove difficult. Netflix has also announced that it will stop reporting subscriber numbers beginning in 2025, a move that indicates internal expectations for slower growth ahead.

Rising Competition 

Competition is heating up once again. Disney+, Amazon Prime Video, and Apple TV+ are doubling down on content and bundling strategies. Netflix’s broad content slate and scale still give it an edge, but rivals are leveraging unique advantages. Disney, for instance, offers Disney+, Hulu, and ESPN+ together for as little as $17 per month, making the service stickier and reducing churn. Crucially, Disney can justify high streaming spend because it monetizes its IP across parks, merchandise, and theatrical releases. See How Disney Stock Can Surge To $230

Price Hikes & Cost Challenges

While subscriber numbers have surged, risks around pricing, costs, and macroeconomic conditions remain. Netflix has steadily raised subscription fees. Its premium plan now costs $25 per month, while the standard HD plan rose by $2.50 to $18. Price hikes help margins in the near term but they still risk alienating cost-sensitive users, especially in an environment of higher inflation and tariffs that could reduce disposable income. Content costs are another challenge. Netflix has expanded into live sports programming, including NFL games and WWE wrestling which carry higher production and licensing costs. While margins improved in Q2, management has cautioned that operating margins could trend lower in the second half of 2025 due to higher amortization and marketing spending tied to its new slate. Netflix is now expected to spend over $20 billion annually on content by 2026, up from about $17 billion in 2024.

Valuation Reality Check

At current levels, Netflix trades at about 47x consensus 2025 earnings, compared with closer to 20x in mid-2022. This premium multiple assumes the company can sustain double-digit growth and margin expansion well into the future. However, consensus estimates point to revenue growth of only 15% to 13% respectively in 2025 and 2026, below its historic pace. With rising costs, slower subscriber momentum, and mounting competition, Netflix may find it difficult to justify its current valuation. By comparison, Disney stock trades at about 20x forward earnings with a $200 billion market cap, while its direct-to-consumer operations brought in $24.15 billion in revenue over the last 12 months versus Netflix’s $41 billion. This suggests Disney’s valuation may be underappreciated given its streaming strengths, and it underscores why Netflix’s elevated stock price could face pressure if growth moderates.

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