Is Netflix's Ad Deal With Amazon the Catalyst for a New Uptrend?
Since the Trump tariff pause in late spring, U.S. equities have turned a massive Q1 drawdown into a big second-half rally, and the S&P 500 is now up more than 10% on the year.
But one large-cap growth darling has been conspicuously absent over the last three months despite fundamental tailwinds.
Despite an impressive Q1 and Q2, Netflix Inc. (NASDAQ: NFLX) has gone nowhere since the end of June.
Still, its recent advertising deal with Amazon Inc. (NASDAQ: AMZN) opens up a new and lucrative revenue stream and could be a potential catalyst for a Q4 rally.
New Deal Shows Netflix’s Commitment to Diversified Revenue Streams
Diversification is always a good thing. Investors diversify their portfolios with a collection of stocks (or ETFs) in different sectors to prevent any one company or industry from dragging down their performance. Companies also try to diversify their revenue sources so they aren’t reliant on a single customer or product to stay in business.
Until recently, Netflix relied on subscription growth as its primary revenue driver; however, with its partnership with Amazon DSP, it is now tapping into a stream that traditional cable companies have long relied upon: advertising.
DSP stands for Demand-Side Platform, and Amazon enables its advertising clients to tailor their campaigns to target specific demographics and markets. Advertisers can plan and purchase ad space through an automated system with access to user behavior insights from Prime Video and Amazon’s flagship website.
Netflix's ad-supported tier recently reached 94 million members, giving Amazon’s ad clients a massive new audience for targeted campaigns.
The Amazon-connected TV ad ecosystem is vast (Roku, Disney, Netflix). It offers specific, proprietary data on which ads drive sales from each platform —a value proposition that advertisers are increasingly willing to pay for. Amazon is building up an elite Connected TV (CTV) ad network, which is a significant reason why some companies with independent DSPs like The Trade Desk Inc. (NASDAQ: TTD) have seen their stocks drop more than 50% this year.
The CTV ad market is estimated to be worth $25 billion in 2025. Netflix’s foray into this lucrative field is why executives haven’t been shy about projecting 100% ad revenue growth this year. Approximately 55% of all new signups choose the ad-supported tier now.
This expanded reach, thanks to the Amazon partnership, is why analysts at Needham and Company LLC reiterated their Buy rating on NFLX shares last week with a $1,500 price target that represents upside of more than 15% from current levels.
New Catalysts to Revive a Dormant Rally
NFLX started 2025 on a solid footing, racing out to a 35% year-to-date (YTD) gain and hitting a new all-time high of $1339 on July 1. But as Q2 came to a close, so did the rally in NFLX shares. Since closing at its record $1339, the stock has gone basically nowhere, trading down 3% in the last three months despite strong earnings and guidance boosts in the Q2 2025 report released after the market closed on July 17.
However, the company has a strong Q4 plan and will end the year with several catalysts in play.
The first catalyst is the upcoming Q3 earnings report scheduled for release on October 21. Netflix aims to build on strong results from previous quarters, especially Q2, where revenue and EPS both significantly beat the projected figures.
The $11.08 billion in revenue represented nearly 16% year-over-year (YOY) growth, and the company raised full-year guidance to a range of $44.8 billion to $45.2 billion in revenue with an operating margin target of 30%.
Full-year ad revenue is expected to double its 2024 output, and the new ad deal with Amazon is set for integration during NFLX’s next catalyst: its Q4 2025 programming slate.
Amazon’s DSP clients won’t just gain access to prominent and influential markets; they’ll be able to advertise across some of Netflix’s most valuable shows and events. We’ve previously discussed the deal with WWE Monday Night Raw, pro wrestling’s flagship weekly program.
Netflix also plans to expand its sports and live event offerings, going head-to-head with ESPN’s popular NBA games on Christmas Day. On Christmas this year, Netflix will show another pair of NFL games, including a marquee matchup between the Dallas Cowboys and Washington Commanders.
Additional premier programming is on the way in Q4, too. Netflix has found a new success story with its Addams Family spin-off, Wednesday, and the blockbuster Stranger Things returns for its final season this winter.
Coupled with the smash hit Squid Game (which began releasing its latest season on June 27), Netflix has a powerhouse lineup of shows and live events for its new swath of advertising clients.
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