Netflix Misses Q3 Earnings on Tax Hit; Shares Fall 5.5% in After-Hours Trading

Netflix Misses Q3 Earnings on Brazil Tax Hit, as Unexpected Expense Pressures Profits

Netflix (NASDAQ: NFLX) reported Q3 2025 earnings that fell short of Wall Street expectations due to a one-time tax expense stemming from a dispute with Brazilian authorities. The streaming giant posted diluted EPS of $5.87, nearly $1.10 below analyst expectations, despite a 17% year-over-year revenue increase to $11.51 billion—matching guidance.

The $619 million tax charge, which was not part of previous forecasts, reduced operating margin to 28% from the expected 31.5%. Without this expense, Netflix stated it would have exceeded its operating margin target.

Shares fell 5.5% in after-hours trading, dropping from $1,241.35 to $1,172.80 following the results.

Ad Revenue and Membership Growth Drive Top Line

The company continues to benefit from pricing power and a growing ad-supported tier. Q3 marked Netflix’s best-ever quarter for advertising, helping reinforce 17% annualized revenue growth. Membership gains and stronger engagement—particularly in key markets like the U.S. and U.K.—also supported results.

Recent viewership data from Nielsen (U.S.) and Barb (U.K.) shows Netflix increasing its share of total TV time. In the U.S., Netflix’s share grew from 7.5% in Q4 2022 to 8.6% in Q3 2025, while in the U.K., it rose from 7.7% to 9.4% over the same period.

Both markets saw double-digit relative gains, reflecting a sustained migration away from linear television—down over 15 percentage points in both regions—and affirming the platform’s growing relevance in traditional TV markets.

Titles such as KPop Demon Hunters, which became the most-watched film in Netflix history with 325 million views, significantly boosted platform activity. Meanwhile, international performance remained robust, with double-digit FX-neutral growth in APAC and EMEA regions.

Full-Year Guidance Holds Despite Margin Revision

Netflix revised its full-year operating margin forecast down to 29% from 30% due to the Brazil-related charge but affirmed its revenue guidance of $45.1 billion. Q4 forecasts point to revenue of $11.96 billion—slightly above Street consensus—along with diluted EPS of $5.45. The company maintains that the Brazil tax issue will not materially affect future quarters.

Content Slate Supports Subscriber Stickiness

The Q4 slate includes high-profile releases such as the final season of Stranger Things, live NFL games on Christmas Day, and major global film premieres. These releases are expected to maintain strong engagement and retention. Netflix also plans to expand monetization through its merchandise and gaming verticals, although these segments remain minor contributors to revenue at present.

Short-Term Forecast: Bullish

Despite the earnings miss, Netflix’s fundamentals remain strong. The Brazil tax charge is a one-off event, and ad growth, pricing power, and content engagement trends remain positive. With a solid Q4 lineup and steady international momentum, the short-term outlook for NFLX appears bullish, barring broader tech sector volatility.

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