On April 2, President Trump announced sweeping tariffs on America's trading partners, which will increase the cost of physical goods coming into the country. The president's goal is to encourage more companies to manufacture products domestically to drive job creation, but there is likely to be significant economic pain in the short term, especially as other countries are expected to respond with tariffs of their own.
Netflix (NFLX 9.77%) and Spotify (SPOT +0.71%) operate two of the world's largest streaming platforms, and they could be great stocks to buy in the face of a potential trade war, for a few reasons:
- Digital goods aren't impacted by tariffs (at least not yet, but this might be a future risk).
- Both companies have extremely diversified revenue streams because they operate in more than 180 countries worldwide.
- Both charge a relatively small monthly fee to hundreds of millions of customers, so tariffs probably wouldn't raise prices enough to trigger mass cancellations.
Both Netflix stock and Spotify stock are down 13% from their all-time highs amid the volatility in the broader market, but they are actually outperforming the Nasdaq-100 technology index, which has plummeted by almost 17% from its high. Since it appears likely that trade tensions will persist for the foreseeable future, here's why investors with a spare $1,500 (money they don't need for immediate expenses) might want to buy one share of Netflix and one share of Spotify.
Image source: Netflix.
The case for Netflix
Netflix is the world's largest streaming platform for movies and TV shows, with 301.6 million subscribers as of the end of 2024. It's far ahead of Amazon Prime with an estimated 200 million subscribers (although Amazon doesn't separate Prime subscribers from Prime Video users), and Disney's Disney+, with 124.6 million subscribers.
Netflix offers three subscription tiers: Standard with ads ($7.99 per month), Standard without ads ($17.99 per month), and Premium ($24.99 per month). The ad tier, which was introduced in November 2022, has been a massive success because of its cheap price point. In the fourth quarter of 2024, it accounted for 55% of all of Netflix's signups in countries where it's available. The number of subscribers using this plan also soared by almost 30% compared to the third quarter just three months earlier.
Ad-tier subscribers also become more valuable for Netflix over time, because as the membership base grows, the company can sell more advertising slots to businesses. Plus, the more time each subscriber spends on the platform each day, the more ads they see and the more revenue Netflix earns. The company said its advertising revenue doubled in 2024, and management expects it to double again in 2025.
NASDAQ: NFLX
Key Data Points
Netflix is trying to accelerate that trend by investing heavily in live content because it keeps people engaged for longer periods of time. For example, it exclusively showed both Christmas Day NFL games last year. Each match typically runs for over three hours, so any subscriber who watched one of them from start to finish was on Netflix for much longer than the average member, who normally spends two hours on the platform per day.
Netflix generated a record $39 billion in total revenue in 2024. That translated to $8.7 billion in net income, which was a whopping 61% increase compared to 2023. Netflix remains one of the few pure-play streaming platforms generating consistent profits, despite outspending all of its peers to create and license content, which is a huge benefit of the company's scale. Management expects to spend $18 billion to expand its slate during 2025, which could further extend its advantage over the competition.
Netflix stock trades at a price-to-earnings (P/E) ratio of 46.2 as of this writing, which isn't necessarily cheap considering the Nasdaq-100 trades at a P/E ratio of 29.2. However, the stock is below its five-year average P/E ratio of 50.2, so investors have typically paid a premium for Netflix because of its growth and its dominant position in the streaming industry.
Plus, Wall Street's consensus estimate (provided by Yahoo! Finance) suggests Netflix will grow its earnings per share (EPS) to $30.18 during 2026, which places its stock at a forward P/E ratio of 30.2. In other words, the stock would have to climb by 66% over the next two years just to trade in line with its five-year average P/E ratio of 50.2. That could be especially likely if Netflix becomes a tariff safe-haven for investors:
NFLX PE Ratio data by YCharts.
The case for Spotify
Spotify is the world's largest music streaming platform. At the end of 2024, it had 425 million free users who are monetized through advertising, and 263 million Premium subscribers who pay a monthly fee for an ad-free experience. Paying users are far more valuable because they account for 87% of the company's total revenue, so Spotify invests heavily in its platform to convince as many free users to become subscribers as possible.
Last year, the company launched a feature powered by artificial intelligence (AI) called AI Playlist, which is only available to Premium subscribers. It allows users to type in a prompt -- whether it be a feeling, a movie, a color, or even an emoji -- and it will produce a list of songs to match. It's a creative way to keep users engaged, and perhaps explore music they wouldn't have otherwise considered.
NYSE: SPOT
Key Data Points
Spotify is also focused on growing its content catalog beyond music. It's already one of the world's largest platforms for podcasts, but it also entered the audiobook space in 2022 to expand its user base. Free users can't access audiobooks at all, but Premium subscribers can listen to 15 hours worth of content each month for no extra charge -- yet another way the company is enticing users to pay.
Spotify generated $17.3 billion in revenue during 2024, an 18% year-over-year increase, marking an acceleration from the 13% growth it delivered in 2023. Thanks to careful expense management, the company also delivered $1.2 billion in net income. It was the first profitable year in Spotify's history, and the result was a big positive swing from the $587 million net loss it generated in 2023.
Since profitability is still new for Spotify, the traditional P/E ratio isn't a good way to value its stock. Instead, we can use the price-to-sales (P/S) ratio, which divides the company's market capitalization by its annual revenue. It currently stands at 6.8, which is near the highest level in Spotify's history as a public company, but that doesn't necessarily mean it's a bad buy right now.
SPOT PS Ratio data by YCharts.
A few years ago, Spotify CEO Daniel Ek issued a forecast suggesting the company's revenue could hit $100 billion by 2032. A year later, he followed that up by predicting Spotify's user base could surpass 1 billion by 2030. If those estimates come to fruition, investors willing to hold Spotify stock for the next five to seven years could be getting an absolute bargain by buying it today. If we assume global trade issues will persist for the next few years, owning this stock sounds like an even better idea.
