1 Glorious Reason Warren Buffett Would Appreciate Netflix Stock

Netflix (NASDAQ: NFLX) continues to be a winning bet for investors. Shares are up 70% just in the past 12 months. And they have soared 1,420% in the past decade, crushing the performance of the S&P 500.

Warren Buffett, the legendary investor who is the longtime CEO of Berkshire Hathaway, is familiar with the media landscape, as some of his company's current positions demonstrate. However, he missed the boat on Netflix, which would have been a positive contributor to the conglomerate's financial success.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Buffett likely still appreciates the streaming stock. Here's one glorious reason why.

Netflix's one amazing quality

Warren Buffett once said:

The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business.

With that in mind, it's clear that Buffett would like Netflix because the top streaming platform has proven pricing power. In the past decade, the business has raised prices for its various tiers on numerous occasions. But the subscriber base still expanded rapidly.

Even in the last five years, a period that had the pandemic, heightened economic uncertainty, and inflationary pressures, Netflix's standard ad-free plan saw a 38% price bump. This still didn't prevent the service from adding large numbers of new accounts. As of Dec. 31, 2024, it had 302 million subscribers, up 453% from a decade before.

Customer value proposition

Netflix has been able to consistently raise prices because it offers its customers tremendous value. The average Netflix member spends about two hours per day on the service. That's likely more than any other streaming platform.

Plus, for $17.99 per month (the cost of Netflix's standard ad-free tier), a household essentially receives $1.5 billion worth of estimated monthly content in 2025. That means award-winning shows and movies, as well as niche content in many different categories, all at your fingertips.

Co-CEO Greg Peters said the pricing philosophy is still the same. It starts with providing greater value to households. "And when we've done that, then we ask them to pay a bit more to keep that virtuous cycle going," he said on the fourth-quarter 2024 earnings call.

Netflix recently announced another price hike in the U.S., Canada, Portugal, and Argentina. This is a clear indication that management remains confident in its value proposition for customers. Nonetheless, investors must pay attention to commentary that reveals how well-received the pricing changes are.

I believe it will become more difficult, but not impossible, for Netflix to continue on this trajectory of raising prices. There's so much competition these days for finite consumer attention from direct rivals within the media industry.

Buffett's admiration

Even Buffett could admit that what Netflix has accomplished is incredible. The company's first-mover advantage has led to scale benefits that support pricing power. From a quality perspective, it's hard to believe Netflix doesn't fit the bill for what the Oracle of Omaha looks for.

However, that doesn't mean Netflix is an automatic buy. The current forward price-to-earnings ratio of 39.3 is too rich, in my opinion.

For the average investor, it's important to understand that the streaming service's pricing power makes it a high-quality stock. The best thing to do now is to simply be patient and wait for the opportunity to buy shares at a better valuation.

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

Before you buy stock in Netflix, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netflix wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $735,852!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of January 27, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, and Netflix. The Motley Fool has a disclosure policy.