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Netflix Inc.

Netflix Reports Lower Than Expected Earnings Due to Brazilian Tax Dispute

Strategic Insights

— 1 min read

Netflix reported lower than expected earnings on Tuesday due to an ongoing dispute with Brazilian tax authorities. The streaming service's shares fell 5.5% after hours trading in New York, despite revenue growth of 17% to $11.51 billion. The company's net income rose 8.1% to $2.55 billion, but operating income climbed only 13% to $3.29 billion. Netflix attributed the lower earnings to a $619 million expense related to the tax dispute, which reduced its operating margin by more than five percentage points.

Key Takeaways:

  • Netflix reported revenue growth of 17% to $11.51 billion in the third quarter, beating Visible Alpha consensus of $11.53 billion.
  • Net income rose 8.1% to $2.55 billion, with diluted earnings per share increasing to $5.87 from $5.40 a year ago.
  • Operating income climbed 13% to $3.29 billion, but operating margin fell to 28.2% from 29.6%, missing 31.5% guidance.
  • The $619 million expense related to the Brazilian tax dispute reduced operating margin by more than five percentage points.
  • Absent this expense, Netflix would have exceeded its third quarter operating margin forecast.
  • The company expects revenue growth of 17% in the fourth quarter, driven by growth in members, pricing, and advertising revenue.
  • Netflix projects an operating margin of 23.9% in the fourth quarter, a two percentage point year-over-year improvement.
  • For the full year 2025, Netflix expects revenue to reach $45.1 billion, up 16% and in line with prior expectations for 15% to 16% revenue growth.

Statistics:

  • Revenue: $11.51 billion (17% growth from $9.83 billion in the prior year)
  • Net Income: $2.55 billion (8.1% growth from $2.36 billion in the prior year)
  • Operating Income: $3.29 billion (13% growth from $2.91 billion in the prior year)
  • Operating Margin: 28.2% (down from 29.6% in the prior year)
  • Brazilian tax dispute expense: $619 million
  • Membership growth: 15% in the US and 22% in the UK
  • Advertising revenue: drove growth in revenue

Sources:

  • Netflix Inc.
  • Alliance News
  • Visible Alpha

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