Shares of Netflix fell around 7% in extended trading Tuesday after the company posted a third-quarter earnings miss, citing an ongoing dispute with Brazilian tax authorities for the weaker-than-estimated results.
The streamer said the specific expense, stemming from a 10% tax on certain payments made by Brazilian entities to operations outside the country, was not previously in its forecast. The company decided to charge the impact to its third quarter after it became reasonably likely that Netflix would lose a legal challenge over whether it would be assessed the tax, executives said.
"It's not a tax that's specific to Netflix. It's not even specific to streaming," Chief Financial Officer Spence Neumann said on the company's earnings call. "Absent this expense, we would have exceeded our Q325 operating income and operating margin forecast, and we don't expect this matter to have a have a material impact on our results going."
Revenue for Netflix's third quarter rose 17%, in line with analyst expectations, boosted by membership growth, pricing adjustments and increased ad revenue. For the fourth quarter, Netflix expects revenue to rise 17% year over year as those trends continue.
Here's how the company did in the period ended September 30, compared with estimates from analysts polled by LSEG:
- Earnings per share: $5.87 vs. $6.97, according to LSEG
- Revenue: $11.51 billion vs. $11.51 billion, according to LSEG
Netflix reported third-quarter net income of $2.55 billion, or $5.87 per share, up from $2.36 billion, or $5.40, in the same quarter a year prior.
For the full-year, Netflix is projecting $45.1 billion in revenue, a 16% jump from the year prior and in line with previous expectations of revenue growth of between 15% and 16%.
The company did alter its operating margin forecast for the year, citing the Brazilian tax matter, and now expects that metric to be 29% instead of the prior projection of 30%.
Still, Netflix said it posted its best ad sales quarter ever during the period, with co-CEO Greg Peters noting that the company is on track to more than double ad revenue this year.
"Netflix had its best ad sales quarter to date, but still did not provide a figure for how large the ad business is," said Ross Benes, senior analyst at EMarketer, in a statement. "This gives the impression that the sustained revenue growth achieved this quarter, and forecasted for next quarter, will predominantly continue to come from subscription fees."
Netflix raised its prices in January, including the cost of its ad-supported tier.
The streamer's fourth-quarter slate of content contains a number of alluring titles, from the fifth and final season of "Strangers Things" and new seasons of "The Diplomat" and "Nobody Wants This" to Guillermo del Toro's "Frankenstein" and Rian Johnson's "Wake Up Dead Man: A Knives out Mystery."
Netflix is also still riding the coattails of "KPop Demon Hunters," which was released on the platform back in June. The animated film has become Netflix's most-watched film with more than 325 million views on the platform.
Netflix announced Tuesday it's expanding the animated film's consumer reach with a dual product partnership with leading toy companies Hasbro and Mattel. "KPop Demon Hunters" dolls, plush, roleplay items and themed games will be available at retail in spring 2026.
The company also noted that it is looking into incremental opportunities related to live experiences, publishing, beauty and lifestyle as well as food and beverages related to the film. "KPop Demon Hunters" is returning to theaters once again during the Halloween holiday weekend.
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