Netflix: A 'Golden Safe Haven' Amid Tariff Turbulence?

$Netflix(NFLX.US) released its Q1 2025 earnings report after the market closed on April 17th, Eastern Time. Under Trump's tariff policies, subscription-based streaming services—less sensitive to macroeconomic fluctuations—have become one of the few safe havens in equity investments.

As the king of streaming with frequent hit shows, can Netflix maintain its dominance after delivering stellar Q4 2024 results? Amid drastic environmental changes due to tariffs, the market is also keenly watching how management will adjust this year's guidance.

Key highlights:

1. Earnings significantly beat expectations

The surprise came mainly from gross margins, driven by the lingering popularity of hit shows, regional price hikes in Q1, and the rollout of high-margin ad-supported plans. Management raised Q2 margin guidance further, targeting an operating margin of 33% (up 1.5 ppts sequentially), but maintained the full-year operating margin guidance at 29%, likely due to cautious considerations about potential pressure in H2.

2. User growth "estimates" remain solid

Although Netflix stopped disclosing subscriber numbers in Q1, Dolphin Research estimated regional subscriber additions based on actual revenue and pricing changes. Q1 subscription revenue growth was primarily driven by user gains (Dolphin estimates 4.5M net adds, above the adjusted consensus range of 3-4M).

Europe and Asia saw stronger growth, benefiting from local hits like Squid Game 2, Ad Vitam, and Counterattack. However, new price hikes in core markets temporarily impacted user growth, notably slowing North America's revenue growth.

Historically, these are short-term fluctuations. With a robust content pipeline this year, Netflix should gradually regain users and return to double-digit revenue growth with pricing tailwinds.

3. Advertising scales up

2025 marks the year of scaling AVOD (ad-supported video-on-demand). In Q1, Netflix launched its first-party ad platform Netflix Ads Suite in the U.S., with plans to expand globally.

Full-year revenue guidance of $43.5-45.5B remains unchanged, including ad revenue expected to double to ~$1.5B (3% of total revenue). Macro turbulence may delay ad outperformance, but the long-term trend remains intact.

4. Content spending growth slows

Q1 free cash flow (Non-GAAP) reached $2.7B, up 25% YoY. As monetization peaks with the content cycle, content spending growth decelerated YoY.

Spending typically accelerates in H2, but given macro uncertainty, Dolphin believes Netflix may underspend its $18B content budget. Competitors facing similar pressures could further ease competitive intensity—a tailwind for Netflix.

5. Increased buybacks

Strong cash flow allowed $800M debt repayment and $3.5B share repurchases (3.7M shares)—above last year's quarterly run-rate of $1.5-2B. Remaining buyback authorization stands at $13.6B.

6. Key metrics snapshot

Dolphin Research Insights

Last quarter, we highlighted Netflix's 2025 focus: AVOD expansion + biennial price hikes in core markets.

While Trump's tariffs pressured high-valuation tech stocks (especially macro-sensitive names), streaming remains relatively resilient—its performance hinges more on content cycles unless a deep recession hits.

Fundamentally, Netflix stands out with its content cycle and pricing power. Macro uncertainty may also force competitors (e.g., Amazon's e-commerce, Disney's parks, Google's ads) to prioritize core businesses, easing competitive pressures—a boon for Netflix.

Valuation-wise, Netflix remains expensive (recently trading at 35x P/E after +10% EPS revisions) due to undiminished market expectations. Despite tariff risks, its "safe haven" status limited its YTD decline to <10% vs. Nasdaq's 15% drop.

However, given unprecedented tariff uncertainty and Netflix's reliance on international markets (Q1 user growth led by Asia/Europe), we recommend waiting for a safer entry point below 30x P/E (vs. 20%+ EPS CAGR expectations). The 2022 low of 17x P/E reflected worse competitive dynamics and COVID disruptions—less relevant today.

Detailed Analysis

1. Hit content drives growth

Dolphin estimates 4M+ Q1 net adds (seasonally slower), fueled by Squid Game 2, Adolescence, and password-sharing crackdowns. Price hikes temporarily suppressed North America growth, but the 2024 content pipeline (Stranger Things, Wednesday sequels) should reaccelerate user growth to 5M+/quarter in H2.

2. Competitive moat holds

U.S. streaming share rebounded to 43.5% in Q1. Netflix (8.6% peak) trails YouTube but leads Amazon Prime Video. Tariff-induced macro pressures may delay competitors' streaming investments, further solidifying Netflix's lead.

3. Pricing impact is temporary

Q1 revenue grew 12.5% YoY (16% cc), slightly beating guidance. User growth and price hikes (U.S./Canada + Europe) drove results. AVOD scaling continues—50% of new sign-ups in rollout markets choose ad-supported plans.

4. Content spending may slow

Q1 content spend decelerated to <$4B YoY. Full-year $18B budget could be underspent due to macro caution. Lower competition intensity benefits Netflix.

5. Earnings smash estimates

Q1 operating profit surged 27% YoY to $3.35B (31.7% margin), driven by pricing power and ad monetization. Full-year margin guidance remains at 29%, likely conservative given H2 macro risks.

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Dolphin Research Netflix Coverage

Earnings Season (past year)

Jan 22, 2025 Call: Netflix: Efficient Investments, Vast Entertainment Prospects (4Q24 Call Minutes)

Jan 22, 2025 Report: The Dream iQiyi Can't Catch? Netflix Is Flying High

Disclosures: Dolphin Research Disclaimer