Netflix’s shares dipped almost seven per cent in the wake of last night’s financial report, after the streaming giant’s strong run of quarterly earnings came to an end following a $619m (£464.8m) tax charge in Brazil dragged on third-quarter profits.
The streaming giant reported a 17 per cent uptick in revenue to $11.2bn, broadly in line with forecasts, while operating income rose 12 per cent to $3.2bn.
But the unexpected tax expense reduced its operating margin to 28 per cent, below the 31.5 per cent guidance set earlier in the year, and knocked earnings per share to $5.87, about a dollar short of Wall Street expectations.
The media behemoth’s shares closed at $1,241.35 before sliding to $1,154.78 in pre-market trading, a 6.97 per cent drop.
Yet, Netflix reaffirmed its full-year guidance, forecasting total revenue of $44.8–$45.2bn and maintaining confidence in its content and advertising growth going into the final quarter of 2025.
Netflix’s ad business strengthens
Many analysts have said the results underlined the strength of Netflix’s core business despite the setback.
“Tax matters aside, the core business is in a happy place”, argued Dan Coatsworth, head of markets at AJ Bell, adding that series like Wednesday or K-Pop Demon Hunters continue to attract international audiences.
Its ad business remains a bright spot, with the streaming behemoth posting its best ad-sales quarter to date and doubling its US upfront commitments.
Live events like the Canelo v Crawford boxing match, were also strong performers.
“Without that one-off tax issue, these results would have beaten expectations”, said Ben Barringer, head of technology research at Quilter Cheviot.
“Netflix remains exceptionally strong and continues to innovate through gaming, AI-driven recommendations and live experiences”.
Netflix’s upcoming slate includes the final season of Stranger Things and Rian Johnson’s Knives Out sequel Wake Up Dead Man.
Strategy and M&A
Executives have said Netflix would remain focused on organic growth, yet have left the day open to so-called “selective M&A”, fuelling speculation it could bid for Warner Bros Discovery, which is reportedly exploring a sale.
Analysts said such a move would mark a significant shift from Netflix’s usual bolt-on approach.
“Buying Warner Bros Discovery would be a radical change”, Coatsworth added. “It would bring valuable IP such as Harry Potter, but there are elements that wouldn’t fit neatly, like CNN/”
Rebecca Crook, chief executive of MMT, added: “By dropping quarterly subscriber updates, Netflix is signalling real confidence in its product and profitability. Advertising now sits at the heart of its next growth chapter.”