Netflix shares dropped approximately 7% in after-hours trading on Tuesday following the company’s third-quarter earnings report, which revealed a shortfall due to an ongoing disagreement with Brazilian tax officials affecting the results more than anticipated.
The streaming service indicated that an unforeseen cost related to a 10% tax imposed on specific payments from Brazilian entities to international operations was not included in its initial projections. The decision to account for this expense in the third quarter was made after it became likely that Netflix would not win a legal battle regarding the tax assessment, according to company executives.
“This isn’t a tax unique to Netflix, nor is it exclusive to streaming,” noted Chief Financial Officer Spence Neumann during the earnings call. “If not for this expense, we would have surpassed our projected operating income and margin for Q325, and we expect this issue to not substantially impact our future results.”
In the third quarter, Netflix’s revenue rose by 17%, matching analyst expectations, driven by subscriber growth, price increases, and higher advertising revenue. For the upcoming fourth quarter, Netflix forecasts a further 17% revenue growth compared to the previous year as these trends persist.
Here’s a comparison of the company’s performance for the period that concluded on September 30 against analyst predictions from LSEG:
- Earnings per share: $5.87 vs. $6.97, per LSEG
- Revenue: $11.51 billion vs. $11.51 billion, per LSEG
Netflix’s third-quarter net income was reported at $2.55 billion, or $5.87 per share, an increase from $2.36 billion, or $5.40, in the same quarter a year ago.
For the entire fiscal year, Netflix anticipates a revenue of $45.1 billion, representing a 16% increase from the previous year, which aligns with earlier forecasts of growth between 15% and 16%.
The company did revise its operating margin estimate for the year, acknowledging the Brazilian tax issue, and now projects it to be 29%, down from the earlier forecast of 30%.
Nonetheless, Netflix reported achieving its highest ad sales quarter yet, with co-CEO Greg Peters highlighting that the company is on pace to more than double its ad revenue this year.
“While Netflix enjoyed its best ad sales quarter to date, it did not disclose the total scale of the ad business,” commented EMarketer senior analyst Ross Benes. “This suggests that the ongoing revenue growth seen this quarter, and anticipated for the next quarter, will mainly derive from subscription fees.”
In January, Netflix increased its pricing, including for its ad-supported version.
The upcoming fourth quarter lineup includes several enticing titles, such as the fifth and final season of “Stranger Things” and new installments of “The Diplomat” and “Nobody Wants This,” along with Guillermo del Toro’s “Frankenstein” and Rian Johnson’s “Wake Up Dead Man: A Knives Out Mystery.”
Additionally, Netflix continues to benefit from “KPop Demon Hunters,” which debuted on the platform in June. This animated film has become Netflix’s highest-viewed film, amassing over 325 million views.
On Tuesday, Netflix announced plans to broaden the reach of the animated film with a dual product collaboration with prominent toy manufacturers Hasbro and Mattel. Dolls, plush toys, roleplay products, and themed games based on “KPop Demon Hunters” will hit shelves in spring 2026.
The company also mentioned its exploration of additional opportunities surrounding live experiences, publishing, beauty and lifestyle products, as well as food and beverages linked to the film. “KPop Demon Hunters” will make a return to theaters during the Halloween holiday weekend.
