Netflix Stock Is Up 70% Over the Past Year. Can It Go Higher in 2025?

Netflix (NASDAQ: NFLX) has revived itself after facing an onslaught of competition and an eroding lead in streaming. It just delivered fantastic news for investors, and its stock is up 70% over the past year. But can it keep raising the bar? Let's see if there's any room left to gain in 2025.

A smashing quarter

The highlight of Netflix's fourth-quarter report was an 18.9 million add-on in subscribers -- its highest-ever quarterly add-on. That's pretty astounding for a company that's already the leader in streaming. Sales increased 16% year over year in the quarter, and its operating margin expanded five percentage points to 22%.

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There was a mix of factors contributing to Netflix's smashing quarter. It streamed several notable sports events, including the Jake Paul-Mike Tyson fight, which became the most streamed sporting event ever, and two Christmas Day football games that were the most streamed NFL games ever. It also added Squid Games 2, which is rapidly becoming one of Netflix's most watched original series, and Carry On, which already joined its top-10 films list. Management also mentioned improved content fit for location as a factor.

Compelling original content has been Netflix's path to success for a long time, but it wasn't always like that. It took many years for Netflix's original content to reach this level, and it was a pivot when Netflix needed to find new growth areas when studios were changing their partnership strategies. Adding live sporting events has been another pivot, and Netflix has gone down several new roads recently, such as its ad-supported tier and gaming venture. It's likely that its spirit of innovation will carry it through other industry changes over the long haul.

What to expect for the rest of the year

Management is guiding for an 11% year-over-year sales increase in the 2025 first quarter, and for its operating margin to inch up from 28.1% to 28.2%. It has a full lineup of original programming, including Squid Game, Wednesday, and Stranger Things, all proven successes. It continues to improve its content-to-market fit, which generates higher sales and also improves margins as it gets it right.

Average paid memberships increased 15% year over year in the fourth quarter, and the company is increasing the monthly fee for U.S. subscriptions and in some other regions. As it delivers more quality content and competes with theater-level films, it can demand higher subscription fees.

Management said it will stop reporting subscriber add-ons this year, removing the extra peek into some of the moving parts in the company, although it will continue to update investors about reaching milestones. It mentioned seasonality as a contributing factor to the high add-ons last quarter, so don't expect a repeat in the first quarter.

Management was also quick to point out that its high subscriber count of more than 300 million shouldn't make investors think it's operating in a saturated market. It estimates to have about 6% of its addressable market, which it identifies as $650 billion in entertainment revenue in its markets. It noted that there are more than 750 million households that have broadband (outside of China and Russia), and Netflix accounts for less than 10% of viewing hours in all of its markets.

Can Netflix stock fly higher this year?

Let's take a look at valuation. Netflix stock trades at a price-to-earnings (P/E) ratio of 49 and a price-to-free cash flow ratio of 62. That's a rich valuation that could be justified for a high-growth stock, but not for a mature stock. Consider that it's guiding for a slight increase in free cash flow, and Wall Street is expecting a low increase in earnings per share. If the valuation stays the same, that implies a low increase for the stock.

On the one hand, Netflix is a proven winner, and it's often the established industry leaders that can weather volatility and keep on delivering. On the other hand, the near-term outlook indicates slow growth.

How should investors put this together? Netflix has demonstrated excellence and has further opportunities. But its stock isn't likely to repeat the same performance it had in 2024 in 2025. However, it could add value to a long-term portfolio that has other, higher-growth stocks.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.