Earnings Preview | Netflix's diversified layout supports revenue growth, advertising business enters "power year"

According to Zhitong Finance APP, Netflix (NFLX.US) will release its Q3 2025 financial report on October 21, 2025 (Tuesday) Eastern Time. In the previous quarter, Netflix provided stable performance guidance, consistent with market expectations. This quarter, Netflix expects to achieve revenue growth by enhancing user engagement, reducing user churn, and launching more diversified entertainment products. With a large user base, Netflix remains optimistic about long-term development opportunities.Here are the key data points worth noting:Performance ExpectationsThroughout the third quarter, market expectations for Netflix's performance have remained stable. In the previous quarter, the company's stable performance guidance aligned with market expectations.Market expectations indicate that Netflix's revenue for Q3 2025 is expected to be $11.5 billion, with full-year revenue for 2025 projected at $45.1 billion. Revenue growth is expected to be supported by a continuous increase in the number of subscribers and improved monetization capabilities. The introduction of diversified pricing plans and packages, along with the ongoing growth of the advertising business, is expected to further enhance its monetization capabilities.According to market expectations, Netflix's operating profit margin for Q3 2025 is expected to rise to 31.5%, with a full-year operating profit margin for 2025 projected at 30.3%.Revenue Growth Drivers and Business HighlightsNetflix expects to achieve revenue growth through the following means: enhancing user engagement, reducing user churn, and launching more diversified entertainment products. In 2025, growth in the gaming and advertising businesses may become key drivers.According to consensus expectations, analysts currently project that Netflix's full-year revenue for 2025 will reach $45.1 billion, with operating profit of $13.6 billion and an operating profit margin of 30.3%—an increase from the previous estimate of 29.6%.In the spring of 2025, management emphasized that the launch of the Ad Tier would help lower pricing barriers. The company stated in its earnings call that it expects advertising revenue to double year-over-year in 2025. Since the beginning of 2025, expectations for ad-supported revenue have been continuously revised upward ahead of the Q3 earnings report. Although the current expectation ($1.1 billion) is still below the initial forecast of $1.6 billion at the beginning of 2024, the overall trend is positive.Long-term Outlook and Profit Margin ExpectationsWith a large user base, Netflix remains optimistic about long-term development opportunities. Co-CEO Gregory Peters stated that 2025 will be a year of "momentum" for the advertising business.Currently, market consensus expectations indicate that Netflix's full-year ad-supported revenue is expected to increase to $6.5 billion by 2027, but this is lower than the expected $7.4 billion in 2024. Analysts have significant divergence in their growth estimates for the advertising business: the expected range for full-year advertising revenue in 2027 has expanded from the previous $3.5 billion to $9.2 billion, to $3.8 billion to $13.8 billion.According to market consensus expectations, Netflix's operating profit margin is projected to rise from 26.7% for the full year of 2024 to 35.1% for the full year of 2027, an increase of 70 basis points from the previous quarter. Currently, consensus expectations suggest that by the end of 2026, its operating profit margin will exceed 32%Analysts have significant differences in their expectations for the full-year profit margin in 2027, ranging from 32% to 37%. This expected increase in profit margin is anticipated to drive Netflix's diluted EPS from $20.22 for the full year of 2024 to $39.77 for the full year of 2027; the full-year P/E ratio for 2027 is expected to be 30 times, significantly higher than the trading level of 25 times in the spring of 2025.The current market consensus target price has been slightly raised to $1,400, indicating about a 17% upside from the current stock price