Netflix shares dropped sharply on Tuesday following the release of its quarterly earnings report, as the company’s profit fell short of market expectations, raising concerns among investors.
For the quarter, the streaming giant reported a profit of $2.5 billion on $11.5 billion in revenue. A major factor behind the earnings miss was a $619 million expense related to an ongoing dispute with Brazilian tax authorities. This unexpected charge significantly impacted the company’s bottom line.
During the earnings call, Netflix executives noted that the company would have exceeded its operating margin forecast if not for the Brazil-related expense. Chief Financial Officer Spencer Neumann clarified the nature of the charge.
“It’s not an income tax; it’s a cost of doing business in Brazil.” He explained that the issue is broader than just the streaming industry and “will likely affect other companies operating in the country.” The decision to account for the expense followed a recent court ruling involving another business operating in Brazil.
After the earnings release, Netflix shares fell more than 6% in after-hours trading, dropping to just under $1,163.
Despite the financial setback, the company reported strong viewer engagement. Viewership in both the UK and the US reached its highest point in nearly three years, driven by hit content including Netflix’s most-watched film to date, KPop Demon Hunters.
Looking ahead, Netflix expressed optimism for the current quarter, citing upcoming final seasons of major series and new movie releases. The company also highlighted the success of its ad-supported membership tier, which had its strongest sales quarter so far. While advertising revenue has more than doubled this year, it still represents a relatively small portion of Netflix’s overall income.
Co-CEO Greg Peters noted increased interest from advertisers, attributing it to Netflix’s “large, engaged audience and rich content slate.” However, analyst Ross Benes pointed out that the company has yet to release detailed metrics for its advertising business, indicating that subscription revenue will likely remain the primary driver for the foreseeable future.
As for long-term growth, Co-CEO Ted Sarandos emphasized Netflix’s preference for an “organic approach,” saying the company is highly selective when it comes to acquisitions. This comment comes amid industry speculation that Netflix may be eyeing a deal with Warner Brothers Discovery.
When asked about potential acquisitions, Peters said it is the company’s “responsibility to look at every significant opportunity.” He confirmed that Netflix operates under a structured framework when evaluating such possibilities. Meanwhile, Warner Brothers Discovery has acknowledged it is reviewing strategic options after receiving unsolicited interest from “multiple parties.”
