Netflix: Can Streaming Still Justify Its Valuation in 2025?

Introduction

Netflix has been at the center of global entertainment disruption for more than a decade. As the pioneer of subscription-based streaming, it redefined consumer expectations for media consumption and drove the collapse of traditional cable television. For years, Netflix’s growth story commanded premium valuations, with investors treating it more like a technology firm than a media company. However, by 2025, the company faces a new reality: slowing subscriber growth, rising content costs, and intensifying competition from Disney+, Amazon Prime Video, Apple TV+, and regional players across Asia and Europe (Financial Times, 2025).

This case study examines whether Netflix’s valuation in 2025 remains justified. Using tools from corporate finance, including discounted cash flow (DCF) modeling, peer multiple comparison, and capital structure analysis, the study evaluates whether Netflix should still be treated as a high-growth stock or whether it has transitioned into a cash flow–oriented media company.

The Evolution of Netflix’s Business Model

Netflix launched in 1997 as a DVD rental service before pivoting to streaming in 2007. Its transition from distributor to content producer began with “House of Cards” in 2013, setting the stage for original content dominance. By 2025, Netflix operates in over 190 countries and has more than 280 million paid subscribers, but growth has slowed relative to earlier years (Bloomberg, 2025).

The company’s core revenue comes from monthly subscriptions, supplemented by advertising on its ad-supported tier launched in 2022. This tier has grown rapidly, with over 45 million active users in 2025 (Reuters, 2025). Content production remains the largest expense, exceeding $17 billion annually, much of it funded through debt issuance.

Strategic Challenges in 2025

Slowing Subscriber Growth

Netflix’s global penetration is reaching saturation in developed markets. While growth continues in Asia and Latin America, average revenue per user (ARPU) in these regions is significantly lower than in North America and Europe (Statista, 2025).

Rising Content Costs

The company’s strategy of producing original films and series has created competitive differentiation but at the cost of high fixed investments. Unlike Disney, which can amortize content across theme parks and merchandise, Netflix relies solely on subscriptions and advertising.

Competition and Market Share Pressures

Disney+ has leveraged its library of Marvel, Pixar, and Star Wars content to capture premium market share. Amazon continues to integrate streaming into its Prime ecosystem, where profitability is subsidized by e-commerce. Apple TV+ focuses on prestige content, operating less for profit than brand enhancement. These competitors reduce Netflix’s pricing power.

Financial Analysis

Revenue Trends

Netflix’s revenue in 2024 was approximately $36 billion, reflecting an annual growth rate of 8 percent (Netflix 10-K, 2025). This is significantly lower than its double-digit growth rates of the 2010s. Analysts forecast revenue growth in the range of 6–8 percent for the next five years (Reuters, 2025).

Profitability

Operating margins in 2025 remain around 18 percent, but rising content costs are likely to cap margin expansion. In comparison, Disney’s streaming division operates at a loss, while Amazon does not disclose profitability but uses Prime Video as a customer acquisition tool (Financial Times, 2025).

Capital Structure

Netflix carries over $14 billion in long-term debt as of Q2 2025, much of it used to finance content production (Bloomberg, 2025). Its debt-to-equity ratio remains higher than traditional media peers, though interest coverage has improved as the company generated consistent positive operating income.

Valuation Methods

Comparable Multiples

Netflix trades at a forward P/E ratio of 28, compared with Disney at 22, Warner Bros. Discovery at 16, and Apple at 28 (MarketWatch, 2025). On an EV/EBITDA basis, Netflix trades at 17x, compared with Disney at 12x and Warner Bros. at 9x. This premium reflects investor belief in Netflix’s stronger long-term positioning.

Discounted Cash Flow Analysis

Assumptions:

Revenue growth: 7 percent annually (2025–2030).
WACC: 9 percent.
Terminal growth rate: 2.5 percent.
Content costs growing at 6 percent annually.

DCF Outcome:

Net present value (NPV) of projected free cash flows: $170 billion.
Current market capitalization: ~$165 billion (Yahoo Finance, 2025).

The model suggests Netflix is fairly valued, with limited upside. Sensitivity analysis shows that if revenue growth slips below 6 percent, intrinsic value drops below current market cap, implying downside risk.

Risk Factors

Macroeconomic ConditionsHigher interest rates increase Netflix’s cost of debt refinancing.
Consumer ChurnWith more streaming choices, customers can cancel and resubscribe easily.
Content RiskHits like “Stranger Things” drive subscription spikes, but dependence on unpredictable audience reception increases volatility.
RegulationNew EU rules requiring minimum European content quotas raise costs in international markets.

Investor Sentiment in 2025

Analysts remain divided. Bulls argue that Netflix’s scale, brand recognition, and ad-tier growth make it the most resilient streaming platform. Bears highlight its slowing growth, reliance on debt, and increasing competition. Investor sentiment reflects this divide: Netflix stock is up only 3 percent year-to-date in 2025, compared to double-digit gains in tech giants like Microsoft and Nvidia (Financial Times, 2025).

Insight and Conclusion

Netflix’s valuation in 2025 appears justified but fragile. The company is no longer a high-growth disruptor; instead, it is a mature media firm balancing growth with profitability. While DCF models suggest fair value, the premium multiples relative to peers reflect investor trust in Netflix’s ability to remain the “default” streaming service. However, this premium is vulnerable if growth falls below expectations or if debt becomes burdensome in a higher-rate environment.

For students of finance, Netflix illustrates the transition of a company from “growth stock” to “cash flow stock.” The key lesson is that valuation depends not only on current performance but also on investor perception of future sustainability.

References

Bloomberg. (2025, March 12). Netflix subscriber growth slows as competition intensifies. Bloomberg. https://www.bloomberg.com

Financial Times. (2025, April 18). Netflix under pressure as rivals boost streaming investments. Financial Times. https://www.ft.com

MarketWatch. (2025, May 2). Netflix valuation compared to Disney and Warner Bros. MarketWatch. https://www.marketwatch.com

Netflix. (2025). Form 10-K Annual Report. U.S. Securities and Exchange Commission. https://www.sec.gov

Reuters. (2025, January 27). Netflix ad-supported tier reaches 45 million users. Reuters. https://www.reuters.com

Statista. (2025). Average revenue per user (ARPU) by region for Netflix. Statista. https://www.statista.com

Yahoo Finance. (2025). Netflix market capitalization and financial metrics. Yahoo Finance. https://finance.yahoo.com