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I’ve never owned Netflix (NASDAQ:NFLX) shares for either my Self-Invested Personal Pension (SIPP) or Stocks and Shares ISA. With the share price up 1,010% over the past decade, that’s been a costly mistake.
However, I still see five strong reasons to consider buying it now. Here they are.
Still growing
One thing that might put investors off is Netflix’s size. It had over 300m paid memberships at the end of 2024. How many more chapters are left in this epic growth story?
It’s a legitimate question. But we just saw in Q2 (reported 17 July) that the streaming giant continues to advance. Revenue rose 16% year on year to $11.08bn, driven by more members, higher subscription prices (more on that below) and increased ad revenue (ditto).
Revenue in the Asia Pacific region jumped 24%. The operating margin improved by 7% to 34%, while free cash flow surged 87% to $2.3bn.
Looking ahead, management sees full-year revenue of $44.8bn–$45.2bn (higher than previously thought). That would represent solid growth of about 15%–16%.
King of content
Another reason I’m bullish is because Netflix has something for everyone. Its new animated film KPop Demon Hunters is a global sensation, while Adolescence even sparked a debate in the UK Parliament earlier this year.
In Q2, season three of Squid Game racked up an eye-popping 122m views, while Exterritorial from Germany (89m views) and Spanish-language film Bad Influence (46m) both went down well.
Its worth noting that the three examples above are non-English language content, which now makes up more than a third of all Netflix viewing.
In the second half, season two of Wednesday and the Stranger Things finale will be released. Safe to say, Netflix remains a content juggernaut.
Pricing power
At the weekend, I paid £24.99 to watch Usyk vs Dubois 2 on DAZN. But in September, I’ll be able to enjoy the Canelo vs Crawford boxing mega-fight live as part of my Netflix subscription. That’s great value, in my eyes.
Netflix raised subscription prices in January, and this didn’t result in mass cancellations. Consequently, I think it has plenty of pricing power left to flex.
I mean, the cheapest plan, Standard with Ads, costs just £5.99 per month today. That’s less than fish and chips!
New revenue
Speaking of ads, the firm has completed the rollout of Netflix Ads Suite, its proprietary first-party ad tech platform. Management expects to roughly double global ads revenue this year, before reaching $9bn by 2030.
The main risk I see here is valuation. After rising 37% year to date, the stock is trading at 48 times forward earnings. If growth unexpectedly slows, say because an economic downturn impacts the global ad market, Netflix shares could pull back sharply.
The company also faces growing competition for younger audiences, particularly from TikTok and YouTube.
Longer term, however, targeted advertising is a powerful new revenue driver, especially as Netflix moves further into live sports.
Artificial intelligence
Finally, Netflix recently used generative AI to produce visual effects for the first time in one of its original series (The Eternaut). Co-CEO Ted Sarandos commented: “AI represents an incredible opportunity to help creators make films and series better, not just cheaper.”
As AI improves over time, I expect it to slash production costs, boost creative productivity, and ultimately fatten profit margins.
