Netflix Shares Fall After Brazilian Tax Issue Hits Earnings

Post by : Saif Nasser

Netflix shares dropped more than 5% after the company reported third-quarter earnings that missed Wall Street targets. The shortfall came from an unexpected $619 million tax expense in Brazil, while the company’s forecast for the rest of the year slightly exceeded analysts’ expectations.

Netflix has more than 300 million subscribers worldwide and has been expanding into new areas such as advertising and video games. Despite its growth, the streaming giant faces strong competition from YouTube, Amazon Prime Video, Disney+, and other services.

Netflix Co-CEO Ted Sarandos said the company is watching industry changes, including potential mergers like the sale of Warner Bros Discovery, but remains selective about acquisitions. “We can and will be choosy about what we buy,” he said. Sarandos also clarified that Netflix is not interested in owning traditional media networks but may acquire intellectual property to strengthen its content library.

Co-CEO Greg Peters added that industry consolidation is unlikely to change Netflix’s competitive position. “Watching some competitors grow through mergers does not, by itself, change the competitive landscape,” he said.

For July through September, Netflix reported net income of $2.5 billion and diluted earnings per share of $5.87, slightly below analysts’ expectations of $3.0 billion and $6.97 per share. Revenue matched forecasts at $11.5 billion. The company posted an operating margin of 28%, which would have been over 31% without the Brazilian tax expense. Netflix said it does not expect the tax matter to significantly affect future results.

Analysts said the Brazilian tax issue weighed on Netflix shares. “All things considered, this was another strong quarter, despite the unforeseen expense,” said Paolo Pescatore of PP Foresight.

Looking ahead, Netflix expects fourth-quarter revenue of $11.96 billion, slightly above Wall Street’s projection of $11.90 billion, with diluted earnings per share of $5.45, a penny higher than analysts’ targets.

Netflix also reported its best advertising sales quarter ever but did not disclose exact figures. Analysts say most revenue growth continues to come from subscription fees rather than ads.

The company plans to release the final season of its hit series “Stranger Things” in November and December and will stream two live National Football League games on Christmas. “We’re finishing the year with good momentum and have an exciting Q4 slate,” Netflix wrote in its shareholder letter.

Earlier this year, Netflix stopped reporting subscriber numbers, urging investors to focus on revenue and profits rather than subscriber growth. Despite the challenges, the company continues to attract viewers globally and remains a major player in the competitive streaming market.