Netflix's Blockbuster Profits Overshadowed By 'Anemic' Engagement

Despite delivering a robust second-quarter earnings report that surpassed analyst expectations and raised full-year guidance, Netflix NFLX stock dipped over 5% on Friday, leaving investors to weigh strong financials against underlying concerns.

The company reported second-quarter revenue of $11.08 billion, up 16% year-over-year (Y/Y). The revenue total beat a Street consensus estimate of $11.04 billion.

The company reported second-quarter earnings per share of $7.19, beating a Street consensus estimate of $7.06. The quarter’s operating margins were 34%, beating the company’s estimate.

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Netflix attributed more members, higher pricing, and increased advertising revenue to helping boost revenue and operating margins.

Netflix expects third-quarter revenue of $11.526 billion, up 17% Y/Y,  and earnings per share of $6.87. Both figures are above Street estimates.

The company also raised full-year revenue guidance to $44.8 billion-$45.2 billion, up from a previous range of $43.5 billion-$44.5 billion. Netflix is guiding for operating margins of 29.5% for the whole year.

Wall Street Analysts Weigh In

In the wake of Netflix’s recent financial disclosures, several prominent Wall Street analysts have issued updated ratings and price forecasts for the streaming company.

Rosenblatt’s Barton Crockett maintained a Buy rating, nudging his price forecast up a dollar from $1,514 to $1,515. Similarly, Needham’s Laura Martin reiterated a Buy rating with a $1,500 price forecast.

On the other hand, JP Morgan’s Doug Anmuth kept a Neutral rating but increased his price forecast from $1,230 to $1,300. Finally, Bank of America Securities analyst Jessica Reif Ehrlich reiterated her Buy rating, setting a price forecast of $1,490.

Rosenblatt’s Bullish Stance

Crockett responded positively to Netflix’s second-quarter 2025 results and raised guidance, highlighting steady financial performance and optimism for the year’s second half despite mixed engagement trends.

The analyst noted that Netflix’s quarterly revenue exceeded guidance by $44 million due to currency tailwinds. He said the constant currency growth of 17% aligned with forecasts, with subscriber growth, ads, and pricing driving revenue. Crockett noted that operating income rose 45% Y/Y, beating guidance by $100 million on substantial margin expansion.

While Netflix no longer reports subscriber numbers, the analyst flagged mixed engagement data. Total hours streamed rose just 1% Y/Y in the first half of 2025, down from 4.5% in the second half of 2024, raising questions about Netflix’s claim to chase the remaining 80% of global TV viewing time, he noted.

However, Crockett expects engagement to improve in the second half of 2025, with June finishing strong due to Squid Game 3. Anticipated releases like Stranger Things, Wednesday, Knives Out 3, Happy Gilmore 2, and Christmas NFL games are likely to boost viewership, as per the analyst.

Netflix raised its fiscal 2025 revenue forecast, reflecting that optimism, Crockett noted. It also lifted operating margin expectations to 30% (from 29%) and raised free cash flow guidance. The analyst highlighted ad revenue doubling Y/Y as another key driver.

Needham’s Cautious Praise

Martin largely praised Netflix’s strong quarterly results and upbeat guidance but flagged concerns around engagement trends, sports strategy, and content bets that led to a muted stock reaction after hours. The analyst flagged weak engagement growth in the quarter, with total viewing time appearing flat or declining per user.

She characterized engagement growth in the second quarter of 2025 as anemic, implying a year-over-year decline on a per-person basis. She emphasized that improving engagement is critical for pricing power, especially as Netflix no longer reports subscriber numbers or ARPU.

Netflix’s push to partner with YouTube creators and video podcasters impressed Martin, who noted it as a strategic shift to stay competitive with YouTube’s content ecosystem. The analyst cited the TF1 deal in France as a smart test case for acquiring local content at scale and low cost. She noted Netflix’s optimism about GenAI tools, which will improve content quality, discovery, and ad targeting.

The company’s dismissive stance on live sports raised eyebrows, and Martin questioned the decision given sports’ proven impact on engagement and subscriber retention in the broader streaming space.

On user experience, the analyst welcomed the long-overdue UI/UX overhaul, noting Netflix’s efforts to modernize navigation to reflect its expanded offerings, such as video games and live shows.

Despite its financial strength, Netflix reiterated it has no plans to acquire legacy media networks, preferring to return cash to shareholders, a move Martin noted as a sign of financial discipline.

While Netflix plans to ramp up video game investment based on subscriber retention metrics, the analyst noted early adoption has fallen short of expectations.

J.P. Morgan’s Neutral View

Anmuth viewed Netflix’s quarterly results and full-year guidance as solid, reflecting strong execution across content, advertising, and monetization. However, the stock traded lower after hours as expectations were already high.

While engagement rose just 1% in the first half of 2025, the analyst expects a meaningful ramp in the second half with the return of major titles like Squid Game S3, Stranger Things S5, and Wednesday S2. He noted that this slate could unlock stronger per-user engagement and pricing power.

Anmuth emphasized that Netflix is well-positioned to become a “global TV” leader by expanding into verticals like live, broadcast, and animation, while boosting scripted and unscripted formats.

The analyst also spotlighted Netflix’s growing advertising business. Ad revenue will likely double in 2025 to $2.9 billion, driven by expanding third-party DSP partnerships (e.g., Google, Yahoo, Xandr) and the rollout of the Netflix Ads Suite and interactive formats.

While advertising is still catching up to Netflix’s user base, Anmuth noted that ad-tier monetization is improving. He said they project ad-tier subscribers could reach 60 million by year-end, representing over 130 million monthly active users.

Despite the strong guide and bullish tone, he remained cautious in the near term, as buy-side expectations are already priced in.

Bank of America Securities’ Continued Optimism

Ehrlich reacted positively to Netflix’s quarterly 2025 results and raised guidance, reinforcing her bullish stance on the stock while acknowledging that high investor expectations may have muted the immediate market response.

The analyst praised Netflix for delivering another strong quarter driven by rising membership, price hikes, and ad revenue. She noted broad-based regional strength, with all markets delivering double-digit FX-neutral revenue gains. Netflix raised full-year 2025 revenue guidance, citing favorable currency trends, subscriber gains, and ad momentum.

While Netflix shares have surged over 40% year-to-date and now trade near 40x forward earnings, Ehrlich noted the company remains well-positioned for continued outperformance, supported by a strong brand, global scale, and growing ad and live content opportunities.

Why the Stock Dipped: Investor Expectations and Engagement Concerns

The paradoxical dip in Netflix’s stock despite strong financials is largely attributed to elevated investor expectations. While the company’s performance was excellent, some analysts and investors might have hoped for an even more bullish outlook, especially given the stock’s significant appreciation year-to-date (over 40%).

Concerns over engagement trends, specifically the modest 1% Y/Y increase in total hours streamed in the first half of 2025, also played a role. Additionally, the company’s warning of lower operating margins in the second half of 2025 due to increased content amortization and sales and marketing costs for a larger content slate may have contributed to investor caution.

Price Action: NFLX stock is trading lower by 4.64% to $1,215.18 at last check Friday.

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