Netflix fell short of Wall Street’s third-quarter expectations after a $619 million tax expense in Brazil weighed on its results, though the streaming giant still projected a stronger finish to the year.
The tax charge, linked to cross-border payments made between 2022 and 2025, led to a net income of $2.5 billion and diluted earnings per share of $5.87, below analysts’ expectations of $3 billion and $6.97.
The company reported an operating margin of 28%, noting it would have exceeded its 31.5% guidance without the unexpected charge.
Chief Financial Officer Spence Neumann explained that the tax issue is not unique to Netflix, saying it affects “other global streaming and technology companies operating in Brazil.” The company added that the development does not mean a long-term threat to its financial outlook.
Despite the setback, Netflix forecast fourth-quarter revenue of $11.96 billion, slightly above Wall Street’s $11.90 billion projection, and projected earnings per share of $5.45, just ahead of analysts’ estimates. “We’re finishing the year with good momentum and have an exciting Q4 slate,” Netflix said in its letter to shareholders.
The company’s shares, which had risen 39% this year before the report, fell 5.6% to $1,171.24 in after-hours trading on Tuesday. Paolo Pescatore, an analyst at PP Foresight, said, “All things considered, this was another robust quarter, despite a blip due to an unforeseen expense.”
Netflix continues to diversify beyond streaming, investing heavily in advertising, gaming, and new technologies. The company said it recorded its best ad sales quarter in history, driven by its ad-supported plan launched in late 2022.
Although it withheld figures, analysts believe advertising could become a growth driver by 2026 as subscriber growth steadies.
Netflix’s gaming vision is also in focus. With over 80 titles in development or live, including tie-ins to popular series like Stranger Things and The Queen’s Gambit, the company is testing cloud gaming in select regions to allow users to play directly on TVs and PCs without downloads. Analysts, however, caution that gaming will take time to deliver meaningful revenue.
Co-CEOs Ted Sarandos and Greg Peters addressed industry consolidation and acquisition speculation during an analyst call. Sarandos said the company remains selective: “Nothing is a must-have for us to meet our goals that we have for the business.”
Peters added that ongoing mergers in the media sector don’t necessarily alter Netflix’s competitive position, stating, “Watching some of our competitors potentially get bigger via (mergers and acquisitions) does not change in and of itself, at least our view, the competitive landscape.”
Netflix plans to close the year with several major releases, including the final season of Stranger Things, new international hits like Berlin (a Money Heist spinoff), and two live NFL games on Christmas Day.
Although its path this quarter was impacted by a financial stumble, Netflix appears to be leaning into its strengths such as content, technology, and advertising, to maintain growth in the streaming market.
