- Netflix Q3 revenue was roughly in line, while EPS missed consensus and the company’s guidance.
- The Brazilian tax expense that dented the bottom line covers periods from 2022 through the third quarter and was booked as a cost of revenue.
- The company maintained its full-year revenue guidance but reduced its margin estimate slightly.
Netflix, Inc. (NFLX) stock slumped about 6.50% to $80.41 in Tuesday’s extended session as traders took stock of the streaming giant’s quarterly report, which showed an earnings miss due to an expense it incurred due to an ongoing Brazilian tax dispute regarding non-income tax assessments.
Retail investors stayed optimistic despite the after-hours drop in Netflix stock.
Netflix Q3 Earnings Snapshot
– Revenue: $11.51 billion (up 17.2% Year-over-Year) Vs. $11.52 billion (consensus compiled by Fiscal.ai)
– Earnings per share (EPS): $5.87 Vs. $6.95 consensus
The revenue growth accelerated from 15.9% in the previous quarter, driven by membership growth, pricing adjustments, and increased ad revenue, but was slightly shy of the guidance issued in late July. The company clarified that the Brazilian tax impact was not incorporated in its guidance ($6.87). It noted that the expense, which covers periods from 2022 through the third quarter, was booked as a cost of revenue. The expense also dented operating margin, which came in at 28% below the 31.5% guidance.
Investing.com analyst Thomas Monteiro, however, refused to pin the lukewarm results to the Brazilian tax issue alone. “Although the tax litigation issue certainly had an impact—particularly on margins—the truth is that the company failed to deliver the kind of growth we’ve grown used to over the past couple of years,” he said.
Among the red flags the analyst raised were the tougher-than-expected environment for new user acquisition, signals that the company’s price-hiking power may be nearing a short-term peak, and the healthy ad market potentially approaching a short-term peak.
“While we’ll get a clearer picture next week from Meta and Alphabet, this is an early indication that the business cycle might be turning more cautious. If confirmed, both Q4 earnings and 2026 projections will become increasingly dependent on the Fed’s rate cycle.”
Netflix’s Forward Outlook
The Los Gatos-based company guided to fourth-quarter revenue growth of 17% versus the 16.5% consensus, and an operating margin expansion of 2 percentage points YoY to 23.9%. It clarified that the Brazilian tax expense will not have a material effect on future results.
Netflix expects full-year revenue of $45.1 billion, translating to 16% growth, aligning with the previous guidance of 15%-16% growth. Analysts, on average, estimate about 15.6% topline growth for the year. The company slightly reduced its operating margin forecast for 2025 to 29% from 30%.
Not Interested In Warner Bros. Deal
While answering a question from an analyst on the earnings call, co-CEO Theodore Sarandos shot down rumors of Netflix’s interest in buying out Warner Bros. Discovery (WBD), which saw its stock rally over 10% on Tuesday on the speculation.
“We’ve been very clear in the past that we have no interest in owning legacy media networks, so there’s no change there,” he said, adding that the company predominantly focused on growing organically, investing aggressively and responsibly into the growth and returning excess cash flow to shareholders through our share repurchase.
What Retail’s Saying About Netflix Earnings
On Stocktwits, retail sentiment toward Netflix stock was ‘bullish’ by late Tuesday, a notch below the ‘extremely bullish’ mood. The earnings report set off heavy retail chatter on the platform. The message volume spiked nearly 1,100% over the 24 hours leading up to late Tuesday. Netflix was the top-trending equity ticker on the platform following the earnings.
Most retail investors slammed the adverse stock reaction, with one user calling the Brazilian tax issue a one-time event.
Another user suggested it was time to load up, potentially to capitalize on the earnings drop. A third user said the stock would bounce back above $1,200 by the end of the year.
A user referred to a comment from Evercore ISI, stating that if not for the Brazilian tax hit, EPS would have grown 7%. They also noted that the firm did not trim its $1,375 price target. The same user, however, speculated that the company may have missed on subscriber numbers, which Netflix no longer discloses.
The Netflix Stock
Netflix ended Tuesday’s regular session up 0.23% at $1,24.35 and has gained 40% for the year-to-date (YTD) period. The average price target for the Netflix stock is $1,349.88, implying roughly 9% upside from Tuesday’s close.
The stock has traded in a 52-week range of $1,231.78 to $1,341.15.
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