Why the Netflix Stock (NFLX) Rally Isn't Done Yet
Netflix (NFLX) has soared almost 80% over the past year, recently topping $1,200 per share, prompting concerns that the stock may be overextended. Critics point to its sharp rally, driven by strong subscriber growth and bold strategic pivots, as a sign of potential overvaluation.
Confident Investing Starts Here:
But this momentum may be more than just a temporary surge. With growing strength in AI, live content, and multiple revenue streams, Netflix appears well-positioned for sustained growth. While a near-term pullback is possible given its valuation, a drop below $1,000 is unlikely. I'm strongly bullish on the cord-cutting stock that consistently disproves the naysayers.
AI-Powered Recommendations: Keeping You Hooked Longer
One of Netflix's most significant successes lately is the progress made in AI-powered recommendations. You're firing up Netflix and are likely to land on a show that feels like it was made for you, a great stride given that this was one aspect the company was struggling with in the past. That's the magic of Netflix's AI-driven recommendation engine, which drove 80% of content consumption last year, with subscribers averaging two hours of watch time daily.
AI refines these Netflix algorithms, analyzing viewing patterns to serve up hits like Squid Game Season 2, which smashed records with 68 million views in its first week. This is great for customer satisfaction and should translate to higher retention. This is evident in churn rates holding steady despite price hikes. By personalizing content at scale, Netflix ensures subscribers stay, while, along with new cohorts coming in by the quarter, its membership and ad revenues both increase.
AI Empowerment Begins to Deliver
AI is also playing a key role in driving investor enthusiasm for Netflix, as it's already transforming how content is developed and produced. From analyzing scripts for audience appeal to optimizing shooting schedules and streamlining post-production, AI allows Netflix to cut costs without compromising quality. A recent example is Carry-On, the holiday thriller that garnered 42 million views in its first week—AI helped refine its pacing to maximize viewer engagement.
At the MoffettNathanson Media Conference, Netflix management emphasized how these efficiencies enable the company to deliver a wide-ranging content slate—from Guillermo del Toro's Frankenstein to Happy Gilmore 2 —without inflating budgets.
As Netflix plans to invest $18 billion in content in 2025, its ability to stretch production dollars through AI gives it a competitive edge. While other streamers continue to grapple with platform scalability, Netflix's proven ability to deliver high-quality originals efficiently reinforces its position as a leader in the space.
AI-Driven Ads Haul in Big Bucks
Then you have Netflix's ad-supported tier, launched in 2022, which has been a runaway success, reaching 94 million monthly active users by early 2025, up from 40 million the year prior. AI is the secret sauce here, crafting ads that feel less like interruptions and more like part of the experience. You're pausing Stranger Things and seeing an advertisement for a retro diner that matches the show's vibe. AI's targeting makes that happen.
We could also see Netflix rolling out AI-generated ads by next year, hyper-targeting viewers with cinematic precision. Management projects this tier could double ad revenue this year. With 45% of new sign-ups in ad-tier markets opting for this plan, Netflix is tapping a goldmine that rivals can't match. The risk here is overloading viewers with ads, which could spark backlash. However, I trust management's execution skills in this regard.
Stretched Valuation Justified by Stability
Despite the excitement around Netflix's AI-driven efficiencies, the stock now trades at over 47x this year's consensus EPS estimate—an elevated valuation, even for a category leader with double-digit growth. Bears argue that a correction is overdue, and there's merit to that view. I agree that Netflix could experience a healthy pullback. However, investors waiting for a significant drop—particularly below $1,000 per share—may be waiting in vain.
With consistent top-line growth and AI poised to drive long-term margin expansion, Netflix is well-positioned to sustain 20%+ annual EPS growth for the foreseeable future. Coupled with its consumer-staple-like attributes—namely, highly predictable cash flows—the company is likely to continue commanding a premium valuation. For long-term investors, Netflix remains a high-quality name that the market will be willing to pay up for.
Is NFLX Stock Expected to Rise?
Wall Street remains highly bullish on Netflix, with a Strong Buy consensus based on 29 Buy and nine Hold ratings over the past three months, and notably, no Sell ratings. However, the average 12-month price target of $1,239.76 suggests a modest 2.2% upside from current levels.
In my view, this reflects a continued underappreciation of Netflix's earnings growth potential, particularly as AI-driven efficiencies and strong content performance support long-term margin expansion.
Netflix's Hopes Aren't Fading Anytime Soon
Netflix's impressive share price rally reflects growing investor confidence in its ability to harness AI to boost revenue and reduce costs. From AI-enhanced user engagement and efficient content production to the rapid growth of its ad-supported tier, Netflix is increasingly viewed as the undisputed leader in the streaming space, with the potential for even greater dominance ahead.
While the stock's valuation is undeniably elevated, the company's strong earnings trajectory suggests that a significant pullback is unlikely in the near term.
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The value of GoTo's consumer loan book for Q1 of 2025 The increase in GoTo's consumer loan book from the same period last yearSource: GoTo earnings call David vs. Goliath competition aside, there's also the question of whether moving earlier into Singapore, a high-income country with a small population, instead of focusing heavily on Indonesia, the region's largest economy but whose GDP per capita pales in comparison with Singapore's, would have helped GoTo. Last October, Kevin Aluwi, one of Gojek's cofounders and now a venture partner at Lightspeed, argued that Singapore is Southeast Asia's most important market. He claimed that while the city-state had 1% of Southeast Asia's population, it contributed 23% of Grab's revenue in 2023. The country had the highest concentration of what he called 'power users,' consumers with enough income to spend on comfort and experiences. Aluwi pointed to data compiled by the World Bank: The monthly per capita income of Singapore residents was $5,957 in 2023 compared with $388 in Indonesia. So while Indonesia, with its large population and annual average GDP growth of 4.2% from 2015 to 2024 represents an attractive market, Singapore was arguably an easier market for a startup focused on providing services requiring frequent consumer spending. While Aluwi was still optimistic about Southeast Asia's growth potential, he noted it's a diverse region made up of individual economies at varying stages of development. The pandemic ended the mid-to late-2010s easy venture fund money for tech startups as investors looked for more immediate returns on investments and exit strategies. GoTo consequently wound down its suite of non-finance and non-mobility-related services over a three-year period, allowing it to save on incentives. Its shareholders also appointed Patrick Walujo, one of Gojek's early backers, as CEO in 2023. His focus: turning GoTo's finances around. In its two most recent quarters, the company's on-demand services turned positive on an adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) basis. Indonesia's TikTok Shop ban also presented an opportunity. In early 2024, TikTok resumed its e-commerce operations in the country after buying a 75.01% stake in Tokopedia worth $1.5 billion. Analysts Fortune spoke to said the deal enabled Walujo to monetize an expense-heavy platform, allowing GoTo to receive an e-commerce service fee every quarter. Niko Margaronis, a former research analyst at BRI Danareksa Sekuritas, says Walujo also made the company more 'focused' after going through different leaders who emphasized growth and valuations. 'Under Patrick, it's a very clear distinction of transiting from growth toward a cycle of profitability. GoTo has improved significantly and is more focused toward efficient operations,' he says. A big part of that focus is a pivot to fintech, GoTo's long-term play regardless of whether it retains its on-demand services business or gets bought out by Grab or another company. On an October 2024 earnings call, GoTo started reporting its financial services results ahead of its on-demand services business, signposting where the company's attention is directed. GoTo's consumer loan book grew to 5.72 trillion rupiah ($344.83 million) for the three months ended March 2025, a 108% increase from the same period the year before. Its financial services are also positive on an adjusted Ebitda basis. While GoTo's on-demand services and financial services segments are adjusted Ebitda positive, analysts see a longer runway for GoTo's fintech arm, even if it's starting from a lower base. 'Financial inclusion in Indonesia is relatively low,' notes Margaronis. A 2023 ISEAS–Yusof Ishak Institute report estimates that about 80% of Indonesia's population is either unbanked or underbanked—exactly the kind of market where a smartphone-friendly fintech provider can thrive. To put things in perspective, Bank Mandiri, ranked No. 23 on the Fortune Southeast Asia 500, has about 41.7 million accounts for 35 million customers as of March 2025. Bank Central Asia, ranked No. 36, also has about 41 million accounts. These large Indonesian financial institutions have also entered the digital finance space, but GoTo's advantage is that it's a tech-first company not bogged down by legacy banking services and systems. GoTo created a stand-alone GoPay app in July 2023, months after Walujo joined. It uses less mobile data, making it easier to access for those in developing cities outside Jakarta using less powerful smartphones. Many businesses in Indonesia also accept e-wallet payments, and GoTo's payment platform is accepted in many parts of the country. The hope, then, is for GoTo to convert those using its e-wallet into banking customers, whether they are drivers; micro, small, or medium e-commerce enterprises; or just people buying stuff online or booking rides. GoTo holds a 22% stake in Bank Jago, which allows users to access banking services, such as savings accounts. Regular digital banking activities would then allow GoTo to accumulate data that could augment its existing consumer loan business and possibly enable it to provide other services like investment and insurance products. Loans can be a revenue driver, as fintechs sometimes charge higher interest rates to cover the increased risks of lending to people traditional banks often don't extend loans to. The fintech focus also comes at a time when GoTo is setting its sights solely on the Indonesian market; GoPay is a for-Indonesia play. Yet the fintech bet comes with challenges. Any potential deal involving Gojek is still uncertain; Walujo told the Financial Times in March he was open to anything that enhances shareholder return in the long term. It's also unclear if any deal will affect operations with TikTok through Tokopedia. GoPay is currently available as a payment option on TikTok Shop, which gives GoTo user data to build credit profiles. Losing access to that, coupled with the loss of access to Gojek data, could make customer acquisition more expensive. And the middle-income squeeze in Indonesia amid rising costs and a stagnant job market means people might not even have enough cash to save. So while financial services may be the calculated long-term bet, the question remains if the Indonesian market is ready for such a service from a tech startup. And if it isn't, that could make GoTo even more vulnerable to a takeover. On May 7, a Reuters report quoting anonymous sources said GoTo would sell off its entire international unit and operations in Indonesia except for its fast-growing finance arm. When Fortune reached out for comment, Grab declined to discuss any deal-related reports, and GoTo pointed to a May 8 filing on the Indonesia stock exchange. In it, the company's secretary, R.A. Koesoemohadiani, said GoTo receives offers from various parties from time to time, but had not decided on offers that may have been known or received by the company at the date of disclosure. In June, Grab went further, denying that it had been involved in acquisition talks related to GoTo. As GoTo deal speculations continue to swirl, one thing is certain: The Indonesian startup is preparing itself for a slimmed-down fintech future, a sector where the reward may be substantially higher than in the ride-hailing space. This articles appears in the June/July 2025: Asia issue of Fortune with the headline 'A second life for a super app.' This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
