Netflix – A World-Class Compounder Trading at a Premium
Q2 results reinforce the long-term thesis, but don’t ignore the price tag.
Netflix announced its second-quarter results late last week, once again proving its exceptional quality and consistent outperformance. The company beat Q2 estimates, delivered strength across nearly every metric, and subsequently raised its FY25 outlook significantly. Netflix just continues to execute at a remarkably high level, widening the gap with competitors and reinforcing its dominance in the streaming landscape. These results only deepen my conviction in Netflix’s long-term prospects and its investment appeal.
I only initiated a position in Netflix earlier this year, taking advantage of some temporary share price weakness. Admittedly, it wasn’t the earliest entry—but in my view, Netflix still has years of compounding ahead, with plenty of room to generate market-beating returns over the coming decade.
As always, I’ll be publishing a full Deep Dive on Netflix in the not-too-distant future. But given the strength of the recent quarter, I want to walk you through the key numbers, trends, developments, and my updated financial projections and price targets today.
Before we dive into the specifics, though, let me first share the investment case that underpins my long-term view on Netflix.
Let’s delve in.
Here’s my (concise) Netflix investment thesis!
Netflix is nothing short of a generational business. With more than 300 million paying subscribers across over 190 countries, it stands as the undisputed global leader in streaming. But what makes Netflix truly exceptional isn't just its scale—it's the strategic positioning, durable competitive advantages, and long runway for growth that continue to set it apart. In my view, Netflix remains one of the most compelling long-term investment opportunities of the next decade. It’s difficult to find a more dominant player in a more structurally attractive industry.
Traditional linear TV is in secular decline, and audiences—especially younger ones—are shifting permanently toward on-demand, internet-delivered content. This transition is not cyclical; it’s irreversible. As a result, streaming is steadily absorbing the global television, film, and even advertising ecosystems. This leads to the expectation that the streaming market will reach $180 billion in size by 2030, compounding at a high single-digit CAGR.
Netflix is well-positioned to benefit, likely outpacing its underlying market, thanks to its strategic positioning and durable competitive advantages.
Its global subscriber base provides an enviable foundation, while its scale, content expertise, and product focus enable it to adapt to changing consumer preferences and competitive threats. For long-term investors, Netflix offers a rare blend of global growth, improving unit economics, brand equity, and strategic flexibility. As linear TV fades and global internet connectivity deepens, Netflix remains one of the best-positioned companies to capture the future of on-demand entertainment.
First, there is its content moat. Over the years, Netflix has invested tens of billions of dollars into building a vast and differentiated content library, which now spans languages, cultures, and genres, making it not only a dominant entertainment player in the U.S. but also the most localized and diversified global streaming service.
This content scale feeds a self-reinforcing flywheel: more content leads to more subscribers, which in turn funds even more content. However, even more important, Netflix has become increasingly efficient at matching content investment to audience tastes, aided by its rich data and analytics infrastructure.
Netflix doesn’t even need the highest production budget; it simply uses its money more effectively by leveraging its rich user database to make the right decisions – its track record speaks for itself. For reference, Disney, Comcast, and Warner Bros all spent more on content than Netflix in 2024.
Its ability to greenlight hits like Squid Game, Stranger Things, or The Crown—produced in different geographies and cultural contexts—is a testament to its sophisticated audience segmentation and data-driven content strategy. Additionally, this localization strategy fosters loyalty across markets and insulates Netflix from relying too heavily on any one franchise or market, unlike many of its peers.
Ultimately, this superior and integrated content strategy, which is very hard to match thanks to Netflix’s brilliant algorithms, gives it a significant edge over the competition, which will help it to continue its track record of outperformance.
Second, there is user experience. From its early days, Netflix has treated streaming delivery and user experience as strategic assets. Its content recommendation algorithm, high-quality adaptive streaming, and seamless user interface across platforms have helped build high customer satisfaction and low churn.
Today, the advertising tier, in particular, opens a compelling new revenue stream, allowing Netflix to capture value from price-sensitive users while also tapping into the digital advertising market without relying on third-party data or compromising user experience.
Furthermore, given current dynamics, its ad-supported tier, launched just two years ago, already reaches almost 100 million users and is on track to generate $9–$10 billion in annual revenue by 2030, becoming a significant revenue contributor and growth driver.
Thirdly, while the competitive landscape in streaming remains intense, Netflix holds key structural advantages. Most competitors—whether Disney, Amazon, or Warner Bros—either rely on broader ecosystems (in Amazon’s case) or are encumbered by legacy media assets and distribution models. Few can afford to fund content at Netflix’s scale while also delivering profitability. Over time, consolidation and rationalization are likely to work in Netflix’s favor.
You see, the streaming market is maturing. The days of every media company launching its own platform and chasing subscriber growth at any cost are over. As economic realities set in, I am seeing a clear move toward consolidation and strategic focus. Many competitors are pulling back, merging, or pivoting away from direct-to-consumer streaming altogether. This creates a dynamic where Netflix, as the scaled leader, stands to benefit from reduced competitive pressure and is the go-to platform for subscribers globally.
Furthermore, as content costs normalize and weaker players exit or pivot, Netflix stands to benefit from increasing industry discipline, a more predictable pricing environment, and even licensing opportunities as competitors look to monetize their content catalogs.
As competitors license more of their content to improve cash flow, Netflix’s already strong library could grow even more further, both through original production and third-party licensing. Over time, this virtuous cycle of scale, efficiency, and content depth reinforces Netflix’s moat and strengthens its long-term pricing power and subscriber retention.
We can already see this play out today – many Netflix competitors are already licensing their content to Netflix, increasingly so, in order to maintain profitability. For Netflix, this only reinforced the earlier-mentioned flywheel.
Netflix is dominating streaming, and the industry dynamics only strengthen its position further. Take 2024, for example – even though Netflix is much larger in size compared to its peers, with at least 33% more subscribers than its closest peer, the company continues to report higher user net adds. In 2024 alone, Netflix added a record 41 million net new subscribers, more than Amazon and Disney+ combined.
Do you need any more proof? Netflix is leaving the competition in the dust – it is the only real winner in the streaming industry.
Finally, a big driver of my optimism for Netflix, besides its streaming dominance and the subsequent benefits, is the room for platform expansion into other verticals, which could significantly grow its TAM. While historically focused on on-demand content, Netflix has started experimenting with live formats in recent years. These tests show strong engagement and pave the way for more ambitious formats that can deepen user retention.
Sports is a particularly compelling opportunity. Although Netflix has long avoided incurring the costs of expensive broadcast rights, its success with sports docuseries like Drive to Survive and Full Swing demonstrates that this is a very compelling market. Done strategically, sports could expand its addressable market, attract new user segments, and significantly enhance the appeal of its ad-supported tier.
If successful, these expansions will position Netflix as a full-spectrum entertainment platform, capturing not just more screen time but also more diverse and monetizable viewing behaviors. In other words, its subscriber and business TAM growth opportunities remain significant.
Netflix isn't just the biggest in streaming—by investor standards, it’s arguably the best, which is exactly why I bought shares earlier this year below $900.
Now, I didn’t name any of the company’s financial metrics, like its excellent ROIC, healthy balance sheet, or strong cash generation abilities. That is because I will address most of these throughout the Q2 analysis.
On that note, let’s delve into the company’s Q2 results, trends, and developments – let’s address all that should concern investors!
Before we move on, just a quick word…
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Netflix is firing on all cylinders
Last week, on July 17, Netflix released its second-quarter results that came in solidly above Wall Street’s expectations as the company continues to execute perfectly and deliver strong financial results. Furthermore, both revenue and operating income exceeded management’s own guidance, reflecting broad-based operational strength.
Starting at the top, Netflix reported Q2 revenue of $11.1 billion, up 16% YoY or 17% in constant currency. This mid-teens growth is excellent and continues to surpass expectations. Furthermore, this represents a notable acceleration from the previous quarter, which is expected to continue into Q3, based on management’s guidance.
