Netflix and Spotify Are Resilient, but Not Recession-Proof

Wall Street Journal

15-04-2025

Winning the streaming wars is one thing. Beating back a global recession is quite another.
Shares of Netflix NFLX 1.41%increase; green up pointing triangle and Spotify Technology SPOT 1.01%increase; green up pointing triangle have fared better than most in the tech and media space during the past week's tariff-induced roller coaster. Such resilience makes some sense, as subscription-based streaming services aren't directly hit by higher duties on goods imported from other countries.
Meanwhile, the wide reach of Netflix and Spotify, which together have more than half a billion people paying monthly fees, give the two a rather strong position with both content creators and their audiences. That advantage could endure and even grow stronger in the event of a recession that would hurt their weaker competitors. Justin Patterson of KeyBanc Capital Markets described Netflix and Spotify as 'defensive plays due to recurring revenue, product cycles, and industry consolidation' in an April 9 report.
Still, resilience isn't immunity. The risk of a recession remains real, even after President Trump announced a 90-day pause on many of the new tariffs to give targeted countries time to make new deals with the U.S. government. And while Netflix and Spotify may be among the last options belt-tightening consumers would choose to cut, both offer multiple pricing tiers that would allow subscribers to trade down to save a few bucks.
That could hurt. Netflix, for instance, averages about $18 a month per ad-free subscriber in North America, according to consensus estimates from Visible Alpha. The company's ad-supported plan costs less than half that much. Spotify's free, ad-supported tier has a much larger user base than its paid version, but paid subscribers make up 88% of the company's total revenue, making trade-downs an expensive scenario for the music streamer. Doug Anmuth of JPMorgan rates both Netflix and Spotify as buys, but noted in an April 8 report that 'there is no macro immunity in the Internet space, only degrees of resilience.'
Most analysts have buy ratings on the two stocks. But, at 35 times and 45 times projected earnings respectively, Netflix and Spotify also command premium valuations that reflect hopes for growth from newer business lines. Spotify has recently moved into audiobooks and is planning to launch a 'super premium' service tier offering higher-quality music streams and other benefits.
Netflix, meanwhile, is working to build up an advertising business that has been surprisingly slow going given its large subscriber base. Analysts estimate Netflix generated a little over $1.8 billion in ad-supported revenue last year, about 5% of the company's total revenue, according to Visible Alpha estimates. Expectations are high for this business: 'I think you can say that 2025 is the year that we transition from crawl to walk,' Netflix co-Chief Executive Officer Greg Peters said on the company's last earning call in January.
Both companies are expected to show strong revenue and earnings growth in their coming first-quarter reports. Likewise, near-term business prospects will likely remain strong. Analysts expect Netflix to project 14% revenue growth for the second quarter when it reports results on Thursday, while Spotify's April 29 report is expected to include a forecast of at least 19% growth, according to FactSet estimates.
And at least Netflix has some pretty ambitious goals for the longer term. Executives there are aiming to double the company's revenue by 2030—and triple its operating income in that time. That is according to internal plans following an annual business review last month, The Wall Street Journal reported on Monday.
But the uncertain economic outlook caused by the past week's tariff gyrations cloud the picture for companies that are looking to grab a growing slice of consumer discretionary spending. Netflix and Spotify have skillfully made their services into must-haves for a huge number of users, but their growth prospects depend on those users having even more extra money in their pockets.
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