Netflix (NFLX) Stock: Q3 Earnings Miss Estimates as Brazilian Tax Issue Impacts Margins

TLDR

• Netflix reported Q3 revenue of $11.51 billion, missing analyst estimates of $11.52 billion and its own guidance of $11.53 billion.
• Earnings per share came in at $5.87, falling short of the $6.94 analyst expectation and the company’s $6.87 forecast.
• Operating margin hit 28% instead of the forecasted 31.5%, due to an unexpected expense from a Brazilian tax dispute.
• The company guided Q4 revenue to $11.96 billion, above Wall Street’s $11.90 billion expectation, with earnings per share projected at $5.45 versus $5.42 estimates.
• Netflix shares dropped over 6% in premarket trading following the earnings report, though the stock has climbed about 40% year to date.

Netflix shares tumbled over 6% in premarket trading Wednesday after the streaming company reported third-quarter results that fell short of Wall Street’s expectations. The company posted revenue of $11.51 billion, just below the $11.52 billion analysts had anticipated and under its own guidance of $11.53 billion.

The revenue figure represents growth from $9.82 billion in the same quarter last year. Earnings per share came in at $5.87, missing both analyst expectations of $6.94 and Netflix’s internal forecast of $6.87.

Netflix, Inc., NFLX

The company did beat last year’s $5.40 per share. Operating margin reached 28%, well below the company’s 31.5% target.

The shortfall stemmed from an unexpected expense tied to an ongoing dispute with Brazilian tax authorities. Netflix said it would have exceeded its margin target without that charge.

The company doesn’t expect the tax issue to materially affect future results. For the full year 2025, Netflix now forecasts an operating margin of 29%, down from its previous 30% expectation.

Revenue Guidance Beats Expectations

Despite the earnings miss, Netflix provided optimistic guidance for the fourth quarter. The company projects revenue of $11.96 billion, topping Wall Street’s $11.90 billion estimate.

Earnings are also expected to exceed expectations at $5.45 per share, higher than analyst estimates of $5.42. For full-year 2025, Netflix expects revenue of $45.1 billion, toward the upper end of its previous forecast range.

The Brazilian tax expense creates some noise in the numbers but isn’t a major issue going forward. The charge represents a catch-up expense in the third quarter and an ongoing cost of just over $40 million per quarter.

That amounts to about half a percent of Netflix’s overall expense base. JPMorgan lowered its price target on Netflix to $1,275 from $1,300 while maintaining a neutral rating.

The firm described the results as “solid overall” but lacking the upside seen in recent quarters. Third-quarter revenue aligned with guidance at 17% growth, while operating income excluding the Brazilian tax expense came in above expectations.

Content Drives Engagement

Netflix said engagement remains healthy thanks to a strong content lineup in the third quarter. The Canelo vs. Crawford fight drew over 41 million global viewers.

The company called it the most-watched men’s championship boxing match of the century. “KPop Demon Hunters” became Netflix’s most-viewed film ever with 325 million views.

The $7.99 ad-supported tier continues to drive user growth. The company reported its strongest ad sales quarter to date.

Ad revenue is on track to more than double in 2025 from a small base. Netflix recently expanded its ad reach through a new Amazon DSP integration.

The move gives marketers more ways to buy inventory on the platform starting in the current quarter. JPMorgan analyst Doug Anmuth estimates Netflix’s advertising revenue will jump from $1.4 billion in 2024 to $2.9 billion in 2025.

He projects another 45% increase to $4.2 billion by 2026. Earlier this month, Netflix announced a video podcast partnership with Spotify.

The deal brings select shows from Spotify Studios and The Ringer to Netflix in early 2026. These include “The Bill Simmons Podcast,” “The Rewatchables,” and “Serial Killers.”

Both Asia-Pacific and Latin American revenue growth decelerated by about 300 basis points from second-quarter numbers. Each region hit 20% growth.

JPMorgan cited higher churn in Asia-Pacific following “Squid Game” and some foreign exchange impacts. Advertising revenue is tracking ahead of expectations, which helped offset some of the regional slowdown.

Netflix shares have climbed about 40% year to date but have lagged the broader market in recent months. The stock trades at roughly 45 times forward earnings.

Warner Bros. Discovery said Tuesday it received unsolicited interest for both the company and its Warner Bros. studio division. Netflix has been mentioned as a potential suitor.

The company said on its earnings call it has no interest in owning legacy media networks. Netflix recently faced criticism from Elon Musk, who urged users to cancel their subscriptions.

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