The streaming giant delivered strong quarterly results and raised guidance, yet shares retreated as industry concerns emerged
Netflix found itself in an unusual position during the third quarter of 2025, watching its stock price retreat even as the company delivered impressive financial results and raised its full-year guidance. The streaming giant’s experience highlights how investor sentiment can diverge from operational performance, particularly when broader industry concerns enter the picture.
The Los Gatos-based entertainment platform reported strong subscriber growth across all regions during the quarter, demonstrating continued momentum in its global expansion efforts. Content spending remained efficient, supporting the company’s long-term strategy of expanding profit margins while maintaining subscriber engagement. Despite these positive developments, shares pulled back from their second-quarter peaks near all-time highs.
Understanding the disconnect
Brown Advisory, which manages the Large-Cap Growth Strategy fund, noted the puzzling nature of the stock’s performance given Netflix’s operational success. The investment firm continues viewing Netflix as a best-in-class operator with meaningful long-term upside potential, suggesting the pullback represents a temporary disconnect rather than fundamental weakness.
Several factors may have contributed to investor caution despite positive results. Headlines about a proposed merger between Warner Bros. Discovery and Paramount surfaced during the quarter, potentially raising concerns about increased competition in the streaming landscape. Additionally, early discussions around potential tariffs on non-U.S. films introduced regulatory uncertainty that could affect Netflix’s substantial international content library and production operations.
Revenue momentum continues
The company’s third-quarter revenue came in line with forecasts, posting a robust 14.84% year-over-year increase. This growth demonstrates Netflix’s ability to expand its business even as the streaming market matures and competition intensifies from rivals including Disney Plus, Amazon Prime Video and newer entrants.
BMO Capital maintained its Outperform rating on Netflix shares following the quarterly results, reaffirming a price target of $1,425. The firm cited confidence in Netflix’s upcoming programming slate as support for its optimistic outlook heading into the fourth quarter and beyond.
The advertising opportunity
Perhaps the most exciting growth driver for Netflix involves its relatively new advertising-supported tier. BMO Capital projects the advertising business will more than double its revenue in 2025, representing a significant new income stream for the company. Strong forward commitments from U.S. advertisers underpin this forecast, with expected performance improvements extending into 2026.
The advertising tier launched as Netflix sought to address market saturation in developed countries and provide a lower-cost option for price-sensitive consumers. Early results suggest advertisers view Netflix’s engaged audience as valuable inventory, willing to pay premium rates to reach subscribers during popular programming.
Global scale and reach
Netflix’s current position reflects years of international expansion and content investment. The platform now serves over 300 million paid subscribers across more than 190 countries, with an estimated global audience exceeding 700 million people when accounting for household sharing. Nearly 60% of revenue originates from outside North America, demonstrating successful geographic diversification.
Loomis Sayles Global Growth Fund highlighted Netflix’s leadership in subscription video on demand, noting the company operates in a total addressable market estimated at one billion households outside China. This suggests substantial room for continued subscriber growth despite the platform’s already impressive scale.
Hedge fund interest remains strong
Institutional investors continue showing confidence in Netflix’s prospects. According to tracking data, 154 hedge fund portfolios held Netflix positions at the end of the third quarter, up from 133 in the previous quarter. This increase in institutional ownership signals growing conviction among sophisticated investors despite the stock’s recent volatility.
The stock closed at $109.35 per share on December 2, giving Netflix a market capitalization of $463.35 billion. Shares have gained 20.03% over the past 52 weeks, though they experienced a slight 0.45% decline over the most recent month as the market digested quarterly results and industry developments.
Looking ahead
Netflix faces the dual challenge of maintaining subscriber growth while expanding its advertising business and managing content costs. The company’s ability to deliver strong results across these priorities during the third quarter suggests management is successfully navigating these competing demands.
As streaming competition intensifies and regulatory questions emerge around international content, Netflix’s execution will determine whether recent stock weakness represents a buying opportunity or signals genuine concerns about future growth prospects.
Disclaimer: This article is for informational purposes only and not financial advice. Always research before making investment decisions.
Source: Insider Monkey/Brown Advisory/BMO Capital/Loomis Sayles
