Netflix Q2 Earnings: Strong Results, Raised Guidance, but “Sell the News” Weighs on Stock

Netflix delivered solid second-quarter results that slightly exceeded analyst expectations on both the top and bottom lines, raised full-year revenue guidance, and highlighted continued growth in ad-tier adoption and free cash flow. Yet despite the healthy update, shares slipped in after-hours trading as some investors opted to lock in gains following a nearly 50%+ rally off the April lows. With the stock now hovering near its 50-day moving average around $1,225, the next move will hinge on how markets digest the longer-term story Netflix is telling.

Second-quarter revenue came in at $9.56 billion, up 17% year over year and just ahead of the $9.54 billion consensus. EPS reached $7.19, topping estimates of $7.08. Operating margin improved to 26.4%, up from 22.3% in the same period last year, driven by continued subscriber growth and operating leverage. For Q3, the company guided to $11.53 billion in revenue and EPS of $6.87, both modestly ahead of Street expectations, while projecting an operating margin of 31.5%.

Most notably, Netflix raised its full-year revenue outlook to a range of $44.8 billion to $45.2 billion, up from its prior $43.5 billion to $44.5 billion forecast and ahead of consensus at $44.53 billion. The company also reiterated its 2025 goal of double-digit revenue growth, mid-20s operating margins, and at least $6 billion in annual free cash flow—a reassuring sign for long-term holders.

On the free cash flow front, Netflix continues to shine. Q2 free cash flow totaled $2.1 billion, bringing year-to-date FCF to $4.2 billion. Management raised its full-year free cash flow projection to approximately $8 billion, up from $7 billion previously. The company attributed the boost primarily to timing shifts in content spend and strong earnings, and noted it expects a more typical FCF cadence in 2026 and beyond as content investment normalizes.

Advertising remains a key strategic focus. While Netflix didn’t break out exact revenue figures from its ad-supported plan, it noted that the tier now represents 40% of all new signups in the markets where it’s available—up from 30% in Q1. The company is also introducing an in-house ad tech platform by the end of 2025 and plans to sunset its partnership with Microsoft as it moves to scale the business independently. Ad-tier engagement and retention have been in line with or better than the Standard plan, and Netflix plans to expand its brand and measurement tools while maintaining a low ad load—currently averaging four minutes per hour.

The subscriber story continues to be resilient. Netflix added 8 million paid memberships in Q2, bringing total global subscribers to 277 million. The company saw net adds across all regions, with Asia-Pacific leading the pack in percentage terms. Average revenue per membership (ARM) increased 1% year over year on a constant currency basis. The company expects ARM to accelerate in the back half of the year, especially in regions impacted by last year’s password-sharing crackdown.

Despite the strong results, the stock traded lower after hours, likely reflecting a classic case of “sell the news” following an extended run. Netflix shares have climbed nearly 50% since mid-April and were approaching overbought conditions heading into the print. The 50-day moving average at $1,225 now serves as an important support level, with technical traders watching closely for either a bounce or a breakdown.

On content, Netflix reaffirmed its focus on a wide range of programming to attract global audiences, citing continued success across both scripted and unscripted genres. “Bridgerton” Season 3, “Baby Reindeer,” and “The Roast of Tom Brady” were among the recent highlights. The company also reiterated its commitment to games, which are still in the early phases of engagement but are seen as a complementary offering.

Management emphasized that it remains in “investment mode” for newer initiatives like gaming and advertising, but made clear that operating discipline and margin expansion remain core goals. “We’re excited about the path ahead,” the letter concluded, “and are focused on building a growing, profitable business that can generate and return substantial cash to shareholders.”

That last point may be particularly important as Netflix continues buying back stock aggressively—$1.2 billion of repurchases in Q2 alone, with another $8.6 billion in buyback authorization remaining. With the streaming landscape still intensely competitive, investors may be comforted by Netflix’s ability to return capital while also investing for long-term growth.

All told, Netflix’s Q2 report checked the major boxes: modest beats on revenue and EPS, upward revisions to guidance, improving profitability, and strong FCF generation. While the stock may be taking a breather, the company’s underlying trajectory remains favorable. For long-term investors, the ad tier growth, subscriber acceleration, and continued margin expansion signal a maturing tech titan still finding ways to grow.

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