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Welcome back to your next edition of GRIT Alpha. Today we’ll be breaking down a stock that’s been a major winner year-to-date.

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Stock Pick: Netflix (NFLX-US, $415B MCAP)

This is the most volatile and headline-dominated market in recent memory.

It seems like the stock market moves depending on which side of the bed one individual wakes up on.

Chaos is the new normal as recession odds are repriced rapidly in real time. Global supply chains are being upended, growth expectations are grinding lower, and at the same time, the Fed looks like it is stuck between a rock and a hard place.

In times of uncertainty, it is prudent to flock to safe harbour investments. These are investments that are much more insulated from tariffs, have dependable revenue streams, and are very protected from fluctuating price instability.

Low cost digital entertainment can be categorized as a staple in these times as it is one of the last things that a consumer cuts. Instead of going to a fancy restaurant then out to a movie, consumers shift to cooking at home and binge-watching shows instead.

That’s exactly where this week’s pick plays - in the comfort of the living room.

Netflix has dominated the streaming game and is showing that operating leverage can come after grabbing dominant marketshare.

Many investors are hiding out in this stock - and here is why you should too.

• Why now? 👉 A Recession-Proof Stalwart

• Overview 👉 What Does Netflix Do?

• Product Suite 👉 Ad-Supported, Paid

• International Expansion 👉 Traction in New Geographies

• By The Numbers 👉 Key Metrics

• Risks 👉 Potential Pitfalls

Why now? 👉 A Recession-Proof Stalwart

In April 2025, Netflix finds itself trading near the psychological $1,000 per share level after a blockbuster Q1 earnings beat. With a market capitalization hovering around $420 billion, Netflix has markedly outperformed tech peers over the past year. Its shares are up roughly 75% year-on-year, buoyed by accelerating subscriber growth, surging advertising revenue, and expanding profit margins.

Crucially, Wall Street sees Netflix as a defensive play in uncertain times. JPMorgan recently described Netflix as the “most resilient” company it tracks, and Oppenheimer analysts note it’s “one of the cheapest forms of entertainment on a per-hour engagement basis” – making it one of the last expenses consumers cut in a downturn. Indeed, Netflix’s low-cost plans and addictive content give it an oasis-like quality in a potential recession.

Investors are piling in not only for this resilience, but also for management’s ambitious vision: internal talks (revealed via a recent leak) suggest Netflix aims to double revenue to $78B, triple operating profit to $30B, and even flirt with a $1 trillion market cap by 2030. While those long-term targets are aspirational, they underscore why now is such a pivotal moment – Netflix is executing on a game plan to turn streaming dominance into sustained financial strength. Dominant platform + unit economics = powerhouse.

Overview 👉 What Does Netflix Do?

Netflix is the world’s leading subscription streaming service, offering on-demand video entertainment to over 300 million paid members globally. Founded as a DVD-by-mail company, Netflix pioneered the streaming revolution and today produces a vast slate of original content spanning TV series, films, documentaries, and even live events.

The platform’s library ranges from award-winning originals (think Stranger Things, The Crown, Squid Game) to licensed classics, delivering personalized viewing across genres and languages. Netflix’s core business model is direct-to-consumer streaming: subscribers pay a monthly fee to access unlimited content on any internet-connected screen, with no advertising on standard plans.

Over the past decade, the company has relentlessly expanded its content budget (now in the tens of billions annually) to fuel subscriber growth, while also developing in-house technology for streaming compression, recommendation algorithms, and now advertising delivery.

Netflix’s scale gives it a strong competitive moat – it’s available in 190+ countries, and its brand is practically synonymous with streaming binges. By the end of 2024, Netflix boasted 302 million subscribers, far above rivals like Disney+ (~159 million) and Amazon Prime Video (~200 million+ global Prime members) in terms of paid streaming audience.

In essence, Netflix’s business is to produce or license engaging content, distribute it globally via its streaming platform, and monetize via subscription fees (and now ads), all while continually analyzing viewer data to refine what keeps us watching. This formula has made Netflix not just a household name but a cultural phenomenon, and it underpins the investment case as a dominant, at-scale media platform with recurring revenues worldwide.

Product Suite 👉 Ad-Supported, Paid

Netflix offers a tiered product suite catering to both budget-conscious viewers and premium subscribers. Its traditional ad-free plans range from Standard (HD streaming on 2 screens, ~$17.99/month in the U.S.) to Premium (4K HDR streaming on 4 screens, ~$22.99/month), forming the majority of revenue. In late 2022, Netflix introduced the Basic with Ads tier, initially priced at $6.99 and recently increased to $7.99/month in the U.S., featuring periodic ads. This lower-cost plan attracts price-sensitive viewers and unlocks high-margin ad revenue. The strategy is proving effective; in Q1 2025, 55% of new subscribers in markets with the ads tier chose this option, reflecting strong consumer demand.

To note: Netflix is now moving away from reporting subscriber numbers, and instead, is now focusing on operating leverage and margins.

Netflix now utilizes both Subscription Video On Demand (SVOD) and Advertising-based Video On Demand (AVOD) monetization models. It is rapidly expanding its in-house ad tech platform, launching in Canada and rolled out in the U.S. this month, enhancing targeted advertising and increasing ad revenue. Additionally, Netflix introduced "Extra Member," allowing subscribers to add another member with ads for ~$7, and cracked down on password sharing to convert non-paying users into subscribers.

This product evolution demonstrates Netflix’s practical approach: after years of avoiding ads, it now embraces advertising to drive growth. Consumers benefit from a flexible range of options—from highly affordable, ad-supported access cheaper than a movie ticket to premium, uninterrupted streaming experiences. This dual strategy successfully expands Netflix's subscriber base, boosting average revenue per member without alienating existing users.

International Expansion 👉 Traction in New Geographies

Netflix’s growth has increasingly become global. With North America (UCAN) at ~90 million subscribers, future gains rely on international markets, where it’s seeing strong traction. In 2024, most of Netflix’s nearly 50 million net new subscribers originated outside North America, notably in the Asia-Pacific (APAC) region. APAC revenue surged +23% year-over-year in Q1 2025, driven by localized plans (e.g., mobile-only options) and popular local content from Japan, Korea, and India. Global hits like Squid Game (Korea) and Money Heist (Spain) highlight Netflix's success in culturally specific programming.

Europe, Middle East & Africa (EMEA) also saw robust +15% revenue growth, matched by subscriber increases, indicating steady market penetration. Latin America (LATAM) experienced mixed results, temporarily losing ~100k subscribers due to 2024 price hikes but rebounding quickly.

Netflix now serves over 190 countries, offering subtitles and dubbing in 30+ languages, emphasizing localization with dedicated regional content teams. Strategic local productions, such as Hindi-language originals in India and K-dramas in Korea, drive subscriber growth. Brazil and India are key priority markets targeted for substantial future user growth by 2030, supported by telecom partnerships and enhanced payment solutions for unbanked populations. Netflix's recent experimentation with live events—like sports and celebrity matches—also aims to attract new global viewers.

Significant global expansion opportunities remain; Netflix targets over a billion potential broadband households worldwide. Despite fierce competition from local and global streaming platforms, Netflix’s continued investment in localized and blockbuster content confirms it's effectively balancing global appeal with regional relevance.

By The Numbers 👉 Key Metrics

Netflix just reported its Q1 2025 financial results on Thursday after market close. The quarter highlighted a strategic pivot toward profitability and revenue diversification, yielding strong performance across key metrics.​

Q12025 Financial Highlights

• Revenue: $10.54 billion, marking a 12.5% year-over-year increase, slightly surpassing analyst expectations.

• Net Income: $2.89 billion, up from $2.33 billion in Q1 2024.

• Operating Income: $3.3 billion, reflecting a 27% year-over-year growth.

• Operating Margin (!!): 31.7%, up from 28.1% in the same quarter last year.

• Earnings Per Share (EPS): $6.61, exceeding the consensus estimate of $5.68.

Shift Away from Subscriber Metrics: In a significant move, Netflix ceased reporting quarterly subscriber numbers, directing investor focus toward financial metrics like revenue and profitability. This transition aligns with the company's emphasis on monetization over sheer user growth.​

Expansion of Ad-Supported Tier: The ad-supported subscription model has gained traction, accounting for over 55% of new sign-ups in markets where it's available. Priced at $7.99 per month, this tier offers a cost-effective option for consumers and a new revenue stream for Netflix.​

To bolster this segment, Netflix launched its proprietary advertising platform, the Netflix Ads Suite, in the U.S. and Canada, with plans to expand globally. The company anticipates doubling its advertising revenue in 2025, aiming for $9 billion in global ad sales by 2030.

Price Adjustments Across Subscription Plans: In January 2025, Netflix implemented price increases across all subscription tiers:​

• Ad-Supported Plan: Raised from $6.99 to $7.99 per month.

• Standard Ad-Free Plan: Increased from $15.49 to $17.99 per month.​

• Premium Plan: Adjusted from $22.99 to $24.99 per month. ​

Regional Performance:​

• Asia-Pacific (APAC): Revenue grew by 23% year-over-year to $1.26 billion.​

• Europe, Middle East, and Africa (EMEA): Revenue increased by 15% to $3.41 billion.​

• Latin America: Revenue rose by 8.3% to $1.26 billion.​

• United States and Canada (UCAN): Revenue grew by 9.3% to $4.62 billion, with expectations for accelerated growth in Q2 as recent price changes take full effect.

Outlook for 2025:

• Full-Year Revenue Projection: Between $43.5 billion and $44.5 billion.

• Q2 Revenue Forecast: $11.04 billion, indicating continued growth momentum.

• Operating Margin Target: 29% for the full year.

Strategic growth drivers include the expansion of the ad-supported tier, global rollout of the Netflix Ads Suite, and investments in diverse content offerings, including live programming and localized content. ​

Risks 👉 Potential Pitfalls

Intense Competition: Netflix faces fierce competition from major players like Disney+, Amazon Prime Video, and Max, all vying aggressively for viewers. Even YouTube poses a threat, especially among younger demographics, raising the risk of subscriber churn if Netflix fails to consistently deliver compelling content.

Saturation & Slowing Growth: With over 70% household penetration in North America and high adoption in Europe, Netflix risks market saturation in mature regions. Future growth depends heavily on less profitable markets like Asia and Africa, potentially slowing overall subscriber growth and alarming investors.

Execution on Advertising: Netflix’s new ad-supported tier introduces execution risks, as it must compete against digital advertising giants and maintain premium advertiser appeal. Any technical hiccups, viewer resistance to ads, or economic downturn could hamper this high-margin revenue stream.

Content Costs & Hit-Driven Nature: Netflix relies on costly content (projected ~$17B spending in 2024) to retain subscribers, making it vulnerable to content slumps or talent losses. Striking a balance between investing enough for hits and maintaining profitability is challenging; missteps here can quickly impact subscriber loyalty and margins.

Valuation & Market Expectations: Netflix’s high valuation leaves little room for error; any disappointment in subscriber growth, margins, or advertising traction could trigger sharp stock declines. Rising interest rates and broader market rotations out of tech also pose risks, as Netflix must consistently meet lofty investor expectations to maintain its premium valuation.

Wrapping Up…

Netflix has transformed the media industry and has positioned itself as a cornerstone of modern entertainment.

The fundamentals look stronger than ever – robust revenue growth, rising profits, and new revenue streams coming online. From a long-term perspective, Netflix is arguably winning the streaming wars, while others struggle for breakeven.

Investors with a growth bias can appreciate Netflix’s combination of scale, brand, and improving financial efficiency.

With Netflix, you get a mega-cap media-tech hybrid that offers both steady subscription income and exposure to the cutting edge of consumer streaming habits. Netflix has shown it can adapt and thrive, so betting against it has rarely been rewarding.

As the saying goes, “content is king,” and Netflix wears the crown in streaming.

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Cheers,

The GRIT Alpha Team

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