Should You Buy Netflix Right Now While It's Below $1,000?

Investors will definitely have a hard time finding many companies that have generated stronger returns than Netflix (NASDAQ: NFLX) has. In the past decade, the stock price has catapulted 1,500% higher. Impressive financial results have kept the momentum going in recent times.

As of this writing, shares of Netflix trade at all-time highs. But should you still buy this top streaming service stock while it's below $1,000?

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First-mover advantage

After adding a record 18.9 million net-new subscribers in the three-month period that ended Dec. 31 (Q4 2024), Netflix now has a whopping 301.6 million customers in more than 190 countries. Growth was broad-based, with all regions seeing solid member additions, proving that Netflix is truly a global media powerhouse.

Netflix has come to dominate the streaming industry thanks in large part to its first-mover advantage. When peers were still focused on their traditional cable TV networks in the 2010s, Netflix invested aggressively in its content slate, technology, and marketing to acquire customers at a rapid clip. Now, it's reaping the financial rewards.

In 2024, the company posted an operating margin of 27%. Due to tremendous leverage in what is primarily a fixed-cost model, that operating margin has improved substantially from just 13% five years earlier in 2019. The leadership team expects that figure to expand to 29% in 2025.

New revenue driver

Sometimes, to boost growth, management teams will do things that they previously said they wouldn't do. This is precisely what Netflix's leadership team did. After years of saying they were unlikely to introduce ads to the streaming platform, executives finally changed their stance, with Netflix launching an ad-supported subscription tier in November 2022.

This strategic move has been a huge success. The company's ad-based option is growing rapidly. In Q4, Netflix saw a 30% quarter-over-quarter bump in ad members. And during the same period, 55% of new customer sign-ups came from ad-based plans in the countries that it's offered. Clearly, consumers are indicating they value the choice of having a lower-priced option.

Engagement between ad-supported plans and ad-free plans is similar, and Netflix is monetizing this engagement. "We've doubled our ads revenue year over year last year," co-CEO Greg Peters revealed on the Q4 2024 earnings call. This pace is much faster than the overall business. The forecast is for ad revenue to double again in 2025.

Netflix also turned down the idea of getting into live sports in the past. But again, management changed its mind. While they call it being in the live events space, it's easy to believe that Netflix will continue to invest more in this type of content. Besides the WWE, it locked up contracts to show NFL games on Christmas and the FIFA Women's World Cup in 2027 and 2031. This will drive more ad revenue over time.

Heightened expectations

Netflix shares have been a monster winner historically. That's not surprising, given the business completely upended the entire media industry by creating a streaming leader that continues to grow members, revenue, and profits at a strong clip. It's not a shock to anyone that the market is head over heels with Netflix.

However, prospective investors need to think long and hard about the valuation they are being asked to pay. As of this writing, shares trade at a forward price-to-earnings (P/E) ratio of 39.6. This is 46% more expensive than the tech-heavy Nasdaq-100 index.

The valuation might seem reasonable to those investors who care more about owning an industry-leading enterprise. But in my opinion, even though the stock trades below $1,000 today, I believe the best thing to do is to wait for a pullback to buy shares at a better forward P/E multiple.

Should you invest $1,000 in Netflix right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.