Ad sales and margin in focus as Netflix prepares for Q3 earnings report

Netflix, Inc. (NASDAQ: NFLX) has effectively navigated the challenging macro environment, supported by its multi-pronged revenue model and stable consumer demand. The streaming giant is evolving beyond a subscriber-centric model toward a strategy focused on engagement, advertising monetization, and margin expansion. Recently, the company raised its FY25 revenue guidance to reflect the strong momentum in ad sales and member growth.

Estimates 

The Los Gatos, California-headquartered company is poised to publish Q3 FY25 earnings on October 21, after the closing bell. Market watchers are bullish on its performance in the third quarter. Analysts’ consensus earnings estimate for the September quarter is $6.94 per share, representing an improvement from the year-ago quarter when the company earned $5.40 per share. The forecast reflects an estimated 17.3% growth in Q3 revenues to $11.52 billion.

A few months ago, the management said it expects third-quarter revenues to increase year-over-year to $11.53 billion, and forecast earnings of $6.87 per share. Netflix’s stock has mostly traded sideways since hitting an all-time high mid-year. However, it has grown by a third over the past six months, outperforming the broader market during that time. The last closing price is about 17% above the stock’s 12-month average price of $1,049.59.

Good Show

Netflix has consistently beaten quarterly revenue and earnings estimates since the beginning of FY24. The company entered the second half on a positive note, reporting higher revenues and earnings for the June quarter. Revenue increased around 16% year-over-year to $11.08 billion in Q2. Net income was $3.13 billion or $7.19 per share in the second quarter, compared to $2.15 billion or $4.88 per share in the prior-year quarter. The company has discontinued reporting quarterly subscription data starting this year.

From Netflix’s Q2 2025 Earnings Call:

“We have always said that the market for entertainment is very large. And we face competition from all kinds of directions. So, whether it is linear, or streamers, or video games, or social media, it is also a very dynamic, competitive market as we and all of our competitors seek to provide better and better options for consumers. And one of those changes, one of those vectors of dynamicism has been that sort of a steady inevitable shift to streaming and on-demand as more services move deliver their content in a way that we all know consumers want.”

Road Ahead

The Netflix leadership sees a modest decline in operating margin in the second half, compared to the first half, due to higher content amortization and sales and marketing costs associated with the company’s larger second half slate. For the full fiscal year, the company raised its revenue forecast to $44.8-45.2 billion from the previous guidance of $43.5-44.5 billion. Having completed the launch of its proprietary ad tech stack globally, a platform enabling programmatic delivery and measurement of advertising inventory across Netflix’s services, the company anticipates ad revenue to nearly double this year.

Netflix shares have grown an impressive 70% since last year. On Monday, the stock opened at $1,221.93 and traded slightly higher in the morning.