Netflix’s big game is just getting started

For Netflix, this year has been a huge hit indeed. The company—already Hollywood’s largest streaming video provider by a long shot—is on pace to grow its annual revenue at more than double the rate of 2023 and grow its subscriber base more than it has in any year save for the Covid-induced surge seen in 2020. That has come from an unusual mix of hit shows, forays into live events and a crackdown on viewers who were borrowing others’ passwords.

Netflix is also ending a strong year on a high note. Its live broadcast of two NFL games on Christmas Day scored a big win, with the games averaging more than 24 million U.S. viewers each and peaking at 27 million for Beyoncé’s halftime show during the Ravens-Texans matchup. Those numbers broke previous streaming records for NFL games, and Netflix pulled off the event without the major technical glitches that marred last month’s live boxing match between Mike Tyson and Jake Paul.

Thursday saw the debut of the second season of “Squid Game,” the South Korean drama that racked up 2.2 billion hours viewed in its first season to become the most popular Netflix program ever.

The NFL broadcast and last week’s deal to stream the next two women’s World Cup events suggest Netflix is finally on the verge of becoming a major player in live sports—one of the few areas of broadcast TV it hasn’t yet fully disrupted. That would further solidify the company’s position as the undisputed victor in the streaming wars even as the rest of Hollywood still races to catch up.

This hope has helped drive Netflix’s share price up around 90% so far this year—setting up the stock’s best annual performance since 2015. Netflix is now sporting a market capitalization of just under $400 billion, roughly equal to the combined market caps of Disney, Comcast, Warner Bros. Discovery and Paramount Global. The stock is also now trading just under 39 times forward earnings, far above that of any media peer and a premium even to the megacap tech names like Apple, Amazon and Google that also operate major streaming services.

Can Netflix live up to that value? The strong slate of new content this month is expected to give a notable boost to the company’s already huge global audience. Analysts currently project about nine million net new subscribers joining Netflix in the fourth quarter, according to consensus estimates from Visible Alpha. That would be the most new subscribers during the year-end period ever save for last year’s fourth quarter, when its crackdown on password sharing helped boost additions to 13.1 million in that period.

But keeping up that sort of growth is going to be trickier than ever. Netflix says its fourth-quarter report on Jan. 21 will be the last time the company publicly discloses subscriber numbers. That could smooth out some of the volatility that the stock has historically seen following the company’s reports, as investors have long focused on subscriber growth to the exclusion of all else. But it also puts a greater onus on Netflix’s ability to reliably boost revenue through price hikes and advertising—and manage expectations while doing so. Note that the company’s forward revenue guidance has missed Wall Street’s consensus targets in eight of its last 10 quarterly reports, according to FactSet data.

Many analysts are still positive. In a report on Monday, Justin Patterson of KeyBanc Capital acknowledged that the stock was in a “valuation danger zone,” but added that the company’s strong operating profits relative to other streaming peers “provides ample flexibility for Netflix to invest in growth, whereas competitors must increasingly weigh tradeoffs between growth and profitability.”

Others are less sanguine; 57% of analysts rate Netflix shares as a buy compared with 62% at the start of the year, according to FactSet data. “Ad-tier optimism seems priced in,” wrote Jason Bazinet of Citigroup in a report earlier this month on the outlook for Netflix’s still-nascent advertising business. And Robert Fishman of MoffettNathanson called Netflix shares “massively expensive” in a report following the company’s last quarterly results in October, when the stock was about 26% below its current price.

Netflix put on a good show this year. Its encore will need to impress even more.

Write to Dan Gallagher at dan.gallagher@wsj.com