After a market value increase of $250 billion, Netflix faces the test of its financial report: Can the advertising business support its sky-high valuation?

Netflix will release its latest financial report on Thursday, as its stock price approaches its highest level in nearly three years, drawing significant attention to the streaming giant's prospects in the coming months.

According to analyst expectations compiled by the media, Wall Street anticipates earnings per share of $6.70 and revenue of $11.3 billion for the second quarter, representing year-over-year growth of 24% and 15%, respectively. The market has high hopes for Netflix's lineup of blockbuster sequels in the second half of the year, including the highly anticipated "Stranger Things."

Analysts warn that Netflix's stock price has priced in perfect expectations, leaving little room for error. Daniel Morgan, senior portfolio manager at Synovus Trust Co., stated:

Netflix's stock price is priced to perfection, with not much room for mistakes. Everyone is expecting a strong performance in the second half of the year.

Over the past year, Netflix's stock price has nearly doubled, with a market capitalization increase of about $250 billion, and its price-to-earnings ratio has risen to 43 times, far exceeding the Nasdaq 100 index's 27 times.

Netflix will announce its second-quarter results after the U.S. stock market closes on Thursday. Options data indicates that the stock price is expected to rise or fall by about 6.5% after the earnings announcement, lower than the average volatility of 9.3%.

Business Model Transformation Drives Diversification of Growth Drivers

In recent years, Netflix has optimized its business model against the backdrop of stagnant user growth post-pandemic. The company now has multiple growth levers, including advertising sales, subscription price increases, and live events such as sports and concerts.

Netflix has stopped reporting quarterly user data this year, a key metric that Wall Street has long used to assess the company's performance. In this context, investors are paying more attention to revenue and profit expectations.

A team led by Bank of America analyst Jessica Reif Ehrlich believes that Netflix is well-positioned due to its "unmatched scale in the streaming space, further room for user growth, significant opportunities in advertising and sports/live events, and continued growth in profitability and free cash flow."

High Valuation Raises Concerns Among Analysts, Focus on Full-Year Guidance

Despite the optimistic outlook, high valuation levels have raised concerns among some analysts. Seaport Research Partners analyst David Joyce downgraded Netflix's rating from Buy to Neutral this month, stating, "We believe that a large number of long-term opportunities are already reflected in the current stock price."

Rosenblatt Securities Inc. analyst Barton Crockett pointed out that if the company fails to raise its full-year sales forecast of $43.5 billion to $44.5 billion, it could disappoint investors. He also mentioned that Netflix may face risks from changing viewing habits, as an "emerging narrative" suggests that YouTube, a subsidiary of Alphabet, may surpass Netflix in the U.S. streaming market.

Crockett wrote:

Although Netflix looks down on YouTube as a talent incubator for content, we see generational changes in consumer preferences that may pose long-term resistance.

According to media compiled data, more than two-thirds of analysts give Netflix a buy or equivalent rating, expecting revenue growth rates in the next three quarters to be between 14% and 16%.

Kenneth Leon, director of CFRA Research, stated in a media interview that Netflix does not face direct tariff uncertainties, and the stock is "well-positioned, even compared to many giants in the Mag 7."

Analysts generally believe that the high multiples of Netflix's stock largely reflect the market's enthusiasm for its highly anticipated content, which includes the new series "Wednesday" and "Happy Gilmore 2" starring Adam Sandler