In its latest earnings report, Netflix fell short of profit expectations outlined by analysts due to a tax dispute in Brazil, which the company cited as a major reason for the underwhelming results.
This announcement on Tuesday ended Netflix’s run of six consecutive quarters with positive news, and it diverged from what analysts had predicted.
The California-based company reported an unexpected expense of $619 million due to the Brazilian tax issue, but it did highlight that its unique lineup of TV shows and films continued to draw viewers. A combination of increased subscription prices and growing advertising revenues allowed it to achieve revenue figures that met broader analyst expectations.
For the July to September timeframe, Netflix reported profits of $2.5 billion, translating to $5.87 per share—an 8% rise compared to the same quarter last year. The success of shows like “KPop Demon Hunters” contributed to this increase.
Investors, however, seemed unconvinced, with Netflix shares declining nearly 6% in after-hours trading following the report.
Analysts had varying perspectives on Netflix’s performance in this third quarter.
One analyst, Tomas Monteiro from Investing.com, voiced concerns that Netflix might be using issues surrounding Brazil’s tax hikes to obscure a potential slowdown in subscriber growth amidst current economic uncertainties. He noted, “The truth is that we have not been able to achieve the kind of growth that we have become accustomed to over the past few years.”
On the flip side, Zacks analyst Jeremy Mullin suggested there wasn’t much to worry about, asserting that Netflix’s core business fundamentals remain resilient.
Netflix’s revenue climbed 17% year-over-year to $11.5 billion. Analysts had anticipated earnings of $6.96 per share alongside revenue of the same $11.5 billion.
As pressures grow, strong financial performance is crucial for Netflix, which is shifting focus away from purely subscriber growth to other metrics. The company halted subscriber rollouts late last year in response to this evolving strategy.
The changes appear to have been effective so far, with shares rising around 40% since January. Although the recent after-hours decline indicates some of these gains might be reversing.
Although lacking specifics, Netflix’s revenue growth suggests an increase in its global subscriber base—approximately 302 million by the close of last year—still the highest among streaming services, even as competitors like Amazon and Apple broaden their offerings.
During a quarterly conference call, co-CEO Ted Sarandos mentioned that Netflix’s total global audience, accounting for multiple individuals in the same household, is nearing 1 billion viewers.
Another co-CEO, Greg Peters, expressed confidence, stating, “We understand the streaming business better than any of our competitors.”
To maintain its dominance, Netflix is broadening its repertoire with more live sports and video games, with plans to delve into video podcasts through Spotify next year.
