Netflix misses big on profit but remains firm that its growth will continue unabated

By Lukas I. Alpert

The company blamed a tax dispute in Brazil for dragging down margins, but said the stage is set for big gains with the company's ad business

Netflix blamed a tax dispute in Brazil for dragging down its margins in the third quarter.

Netflix missed the mark on profit in the third quarter due to a one-time tax issue in Brazil, but said its fundamentals remain solid and that the company is poised for continued growth in revenue, subscribers and ad sales.

Company executives said the streaming service's upcoming content slate is strong, building upon a string of major hits including the global phenomenon, "KPop Demon Hunters." That, coupled with a growing slate of live-event offering, should allow the company to hit its targets for the year despite the legal setback in the quarter that ended in September.

"We think the business is very healthy and we are very happy with our progress with the key initiatives we have and we see a lot of opportunity ahead of us," Netflix's co-CEO Gary Peters said in a call with analysts.

The streaming giant said its third-quarter results would have met expectations and its own guidance if it weren't for an unfavorable court ruling in Brazil involving a $619 million tax expense there. The company said it didn't "expect this matter to have a material impact on future results."

The impact of that ruling resulted in Netflix reporting net income of $2.55 billion, up from $2.36 billion in the same quarter a year earlier, but well below net income of $3.01 billion that had been estimated by analysts polled by FactSet.

Earnings per share came in at $5.87, the company reported. Analysts polled by FactSet had predicted EPS of $6.96.

Netflix shares (NFLX) fell more than 6% in after-hours trading following the release of the results.

Media analyst Paolo Pescatore of PP Foresight, said he viewed the quarter's results as a hiccup.

"All things considered, this was a robust quarter, despite a blip due to an unforeseen expense," he said. "The streamer is in an enviable position thanks to one of its strongest content slate ever."

Netflix shares had fallen around 8.5% since hitting an all-time high at the end of June, after investors started worrying that the company's stock was overheating, but were still up nearly 40% in 2025.

Revenue rose to $11.51 billion, up from $9.83 billion in the third quarter in 2024. That was in line with the $11.51 billion that analysts had predicted.

The company said it expected revenue to continue to grow in the fourth quarter due to gains in subscribers, increased pricing and boosts to ad revenue, and forecast that it would finish the year with $45.1 billion in revenue, in line with previous guidance.

It did revise down projections for its full-year operating margin, a measure of profitability, to 29% from 30% due to foreign currency exchange issues and the impact of the Brazilian tax matter.

Netflix said that it had a record quarter for ad sales as it continues to build out its advertising business, which analysts expect to be a big driver of growth for the company in the years ahead. The company said it projected that its overall ad revenue would more than double this year, although that figure was building off a relatively small base.

Most analysts had predicted that Netflix would report third-quarter results that were well in line with the company's ambitious guidance and with expectations on Wall Street. They also have said they expect that the streaming giant is set for a banner fourth quarter as its ad business starts to really take off.

Netflix's ad strategy is two-pronged: first to reduce churn - or the steady departure of subscribers who cancel the service - by offering a lower-priced option that includes ads, and second to drive revenue through the sale of ads.

Netflix's ad business remains relatively new, so revenue from the ads themselves still represents a small portion of the company's overall business, but it is expected to grow steadily in the coming quarters.

In late 2022, Netflix added a lower-cost, ad-supported subscription tier, which has been a slowly building contributor to subscriber growth. The lower-priced package - which costs $7.99 a month, versus $24.99 a month for a premium ad-free package - has enabled Netflix to attract a large number of customers who may have been put off by the higher price point.

The company has also been expanding its offerings in live sporting events which has been expected to be a significant driver of audience going forward.

The company projected at the end of the second quarter that its revenue would grow 17% in the third quarter due to "growth in members, pricing and advertising revenue." It also forecast an operating margin of 31% for the September quarter, 2% better than the same period last year.

The company also raised its guidance for full-year revenue to a range of $44.8 billion to $45.2 billion, up from a range of $43.5 billion to $44.5 billion. Netflix benefited last quarter from a weakening U.S. dollar, which boosted its net income.

Earlier this year, Netflix set ambitious internal growth targets of doubling its revenue by 2030 and reaching a market capitalization of $1 trillion. The company's current market valuation is around $510 billion.

The company aims to have 400 million global subscribers by then. Netflix also is aiming to triple its annual operating income by 2030 from around $10.4 billion last year.

-Lukas I. Alpert

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10-21-25 1802ET