Netflix’s quarter — and stock price — was dragged down by a hefty $619 million tax-related expense that took Wall Street by surprise.
Netflix otherwise had another standout quarter, notching record revenue fueled by robust viewership for Korean-themed megahits like “Kpop Demon Hunters” and “Squid Game,” as well as its live boxing event, “Canelo vs. Crawford.”
Netflix’s revenue rose 17.2% to a record $11.5 billion in the third quarter, largely in line with expectations from analysts and the company’s guidance.
The company said its ad tier, a key growth area for the streamer, had its “best ad sales quarter ever” and doubled commitments from US advertisers.
The stock sank 6% in after-hours trading following the release after its earnings per share significantly missed expectations.
A $619 million surprise for Wall Street
The streaming titan’s operating income was up 7.7% year-over-year to $2.55 billion, or $5.87 per share, which was well under analyst estimates of $6.94 and Netflix’s guidance of $6.87.
Netflix said that the miss on operating income and margins came after an “ongoing dispute” with Brazilian tax authorities that cost it $619 million.
“Absent this expense, we would have exceeded our Q3’25 operating margin forecast,” Netflix said in its shareholder letter.
While Netflix’s bottom-line miss wasn’t in its third-quarter forecast, the company had disclosed in its second-quarter 10-Q filing that it was “involved in a number of matters with Brazilian tax authorities regarding nonincome tax assessments.” Netflix had said that although a loss was “not probable,” it warned “the final outcome may be materially different from our expectations.”
“We don’t expect this matter to have a material impact on future results,” Netflix wrote in its third-quarter release after disclosing the expense.
‘Healthy’ engagement drives revenue
Netflix’s robust revenue growth suggests that its never-ending mission to improve engagement is working.
Despite stiff competition from YouTube, content creators, and AI-powered video apps like Sora, Netflix just had its best-ever quarter of viewership on US-based smart TVs, according to Nielsen data dating back to May 2021. Nielsen found that Netflix averaged an 8.6% viewership share from July through September — far higher than any other paid streaming service.
However, Netflix is still well behind YouTube in engagement. The Google-owned streamer averaged an enviable 13% viewership share on smart TVs in the third quarter, per Nielsen.
Netflix is trying to close the gap with likely its biggest rival by adding video podcasts and luring YouTubers like Ms. Rachel. Some Wall Street analysts believe the streaming powerhouse should go even further by investing in short-form video.
While Netflix no longer shares subscriber numbers, analysts polled by Bloomberg estimate that the service has 315 million global members.
This story will be updated.
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