January 21, 2025
(Bloomberg) -- Netflix Inc. may have a hard time topping its mammoth 2024, but Wall Street is optimistic about offerings that include major names in entertainment and sports.
The streaming-video company has made a splash with sports programming, with investors bullish for live events that are more valuable for its advertising business than the kind of on-demand programming Netflix built its library on. It continues to have success there, with the latest Squid Game topping charts.
“Live events are frankly a huge catalyst, since the viewership numbers are crazy and it opens up a new channel for Netflix to further monetize its user base,” said Clayton Allison, portfolio manager at Prime Capital Financial. “While investors want to see numbers that will justify the premium, Netflix is so dominant that I’m not turned off having to pay more to hold it.”
A November boxing match between Mike Tyson and Jake Paul drew Netflix a global audience that peaked at 65 million streams, while two NFL games that aired on Christmas Day — with one featuring a halftime performance by Beyoncé — attracted more than 24 million viewers each, above the average viewership for pro football broadcasts this season. Shares of the streaming company were up as much a 1.5% in early trading Tuesday.
Netflix has also bought the exclusive rights to Raw and other programming from World Wrestling Entertainment. Live events and sports will likely be a focus of its fourth-quarter results, due after Tuesday’s close, and positive commentary could help reverse the stock’s weakness seen at the start of this year.
“That is where they are starting to make noise,” said Jay Woods, chief global strategist at Freedom Capital Markets, adding that he’ll be listening for any updates on next big events planned or new partnerships on Netflix’s earnings call.
Sport has become increasingly important for media companies, as it remains one of the remaining bastions of appointment viewing. Direct TV is launching a sports-focused streaming service featuring NFL games, and Walt Disney Co. will merge its Hulu + Live TV streaming service with the online sports-focused FuboTV Inc. Disney, Fox Corp. and Warner Bros. Discovery Inc. had plans to create a joint sports streaming service, although this was scrapped earlier this month.
For Netflix shares it has been a rocky start to the year, underperforming the Nasdaq 100 index following an 83% surge in 2024. The stock trades near 36 times estimated earnings, above the Nasdaq, although it is roughly half its average over the past 10 years. Just over two-thirds of analysts tracked by Bloomberg hold buy or equivalent ratings, below other tech leaders.
Still, since a post-pandemic low the shares have soared more than 400% — and the firm has added more than 60 million customers —as steps like the introduction of advertising and a crackdown on password sharing reassured investors about its ability to continue generating growth.
In November, Netflix — whose market capitalization of about $370 billion makes it more than 50% bigger than Walt Disney Co., Paramount Global, and Warner Bros. Discovery Inc. combined — said 70 million viewers watch shows with advertising every month, double the total from May.
“Advertising is the story for the next few years, since Netflix’s user base is one of the most desirable audiences advertisers can imagine, and improving ad monetization will mean high-margin growth without the need to keep adding users,” said Uday Cheruvu, portfolio manager at Harding Loevner. “Netflix has to prove its spending on sports will be profitable, but it can do that with advertising, and that’s why the stock still looks attractive here.”
There are headwinds that Wall Street will also be monitoring, namely what impact currency exchange will have on revenue due to Netflix’s large global footprint and US dollar strength. Revenue will be increasingly in focus as Netflix winds down reporting how many subscribers its added in each period.
But market players remain upbeat. “If it doesn’t perform as people are expecting and the stock comes down a little bit, that would probably be a buying opportunity,” said Hanna Howard, a portfolio manager at Gabelli Funds.
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--With assistance from Subrat Patnaik.
(Adds stock move in fourth paragraph)
