Netflix shares down after Q3 earnings miss

Netflix shares slumped almost 7% after missing its Q3 earnings following an unplanned $619m (£464.5m) tax bill in Brazil.

Revenues were up 17% to $11.5bn (£8.6bn) as expected, with the company pointing to subs growth, price rises and advertising revenue as factors behind the rise.

Net income stood at $2.55bn (£1.9bn) up from $2.36n last year, but earnings per share were $5.87 versus analyst expectations of $6.97.

Operating margin was down from an expected 31.5% to 28% due to an “ongoing dispute with Brazilian tax authorities” that was not in the forecast.

The issue with the Brazilian tax authorities relates to non-income tax assessments and payments made outside of the country, covering a period from 2022 to Q3 2025.

Without the charge, Netflix said it would have exceeded its margin forecast and added that the charge would not have a “material impact on future results”.

The issue has, however, pushed the streamer into reducing its operating margin for the year – down from 30% to 29% – and Wall Street sent shares down from $1241 to $1160 apiece in after hours trading, having risen more than 35% so far this year.

The streamer pointed to Wednesday S2, Bon Appétit, My Life with the Walter Boys S2, Your Majesty from South Korea and Happy Gilmore 2 as key subs drivers, while KPop Demon Hunters became its most popular film ever.

Netflix added that it had enjoyed its best ad sales quarter ever over the past three months, with a “record TV view share” in Q3 in the US and the UK.

Based on Nielsen and Barb data, the streamer said its share between from Q4 2022 and Q3 2025 had grown 15% and 22% in the US and UK, respectively.

“Given the still substantial amount of linear viewing globally, we believe there’s plenty of opportunity to expand our share of TV engagement, if we continue to improve,” the streamer added.

Netflix added that its Q4 highlights include the final season of Stranger Things, new seasons of The Diplomat and Nobody Wants This, and Guillermo del Toro’s Frankenstein.

Regional breakdown and M&A

While the Brazilian tax issue hit margins, Netflix’s Lat Am revenues were up 10% year-on-year, standing at $1.37bn.

North American (UCAN) revenues were up 17% YoY from $4.3bn this time last year to $5.07bn, while EMEA rose 18% to hit $3.70bn and APAC rose 21% to $1.37bn.

Netflix co-chief exec Greg Peters also touched on the future of Warner Bros Discovery, which yesterday rebuffed a second approach from Paramount after the David Ellison-led company reportedly upped its previous offer of $20 a share to $24.

Talking on the Q3 earnings call, Peters said studio M&A would not solve industry challenges, adding that “you don’t get there by simply buying another company developing those same capabilities.”

Peters added that studio M&A did not change “the competitive landscape” for Netflix while co-chief exec Ted Sarandos reiterated that the company had no interest in acquiring “legacy media networks”.

He did say, however, that the company’s M&A strategy involved it asking whether acquiring IP via M&A could help “strengthen out entertainment offering” or “strengthen our capabilities somehow”.