Netflix Shares Sink as Quarterly Profit Falls Short of Expectations

Netflix $619 million charge from a Brazilian tax dispute weighed down earnings, offsetting strong subscriber growth and record ad-supported sales for the streaming giant.

 Netflix shares dropped sharply on Tuesday after the streaming giant reported quarterly results that fell short of investor expectations, weighed down by an unexpected tax expense tied to operations in Brazil.

The company posted a profit of $2.5 billion on $11.5 billion in revenue for the quarter ending last month, missing Wall Street’s profit estimates. Netflix said its earnings were hit by a $619 million charge related to an ongoing dispute with Brazilian tax authorities.

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Executives told analysts on an earnings call that, without the Brazil expense, the company would have surpassed its operating margin forecast for the quarter.

“It’s not an income tax; it’s a cost of doing business in Brazil,” said Spencer Neumann, Netflix’s chief financial officer. “It’s not even specific to streaming, so we assume other companies will be impacted by this.”

The expense was prompted by a recent court ruling involving another firm doing business in Brazil, which increased the likelihood that Netflix would face similar financial exposure. The company decided to record the charge during the quarter, resulting in lower reported profit.

Netflix’s stock fell more than six percent in after-hours trading, slipping below $1,163 per share following the earnings release.

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Despite the hit to profit, Netflix executives struck an optimistic tone about the company’s future growth, citing record engagement levels and expanding advertising revenues.

The platform reported that viewership in the United States and the United Kingdom had reached their highest levels in nearly three years. The surge was driven largely by the success of “KPop Demon Hunters,” which Netflix described as its most-watched film ever.

The company expects momentum to continue in the coming months, supported by major upcoming releases such as the final season of “Stranger Things,” the political thriller “The Diplomat,” and a new “Knives Out Mystery.” Netflix is also investing in live programming, including professional football and boxing, as part of its strategy to compete more directly with traditional television networks.

Netflix also reported that its ad-supported membership tier had its strongest quarter to date. The company said it has more than doubled ad revenue this year, though it declined to reveal exact figures.

“We’re gaining momentum with advertisers given the platform’s scale, engaged audience, data analytics, and diverse content slate,” said Greg Peters, Netflix’s co-chief executive.

According to Ross Benes, a senior analyst at Emarketer, the lack of transparency around advertising figures suggests that subscription fees still represent the bulk of the company’s revenue. “Netflix had its best ad sales quarter to date but still didn’t provide a number for how large the ad business is,” Benes said. “That implies most growth continues to come from subscriptions.”

Netflix ended the quarter with over 300 million paid memberships across 190 countries, reinforcing its position as one of the world’s largest entertainment services.

Amid its financial reporting, speculation resurfaced about a possible acquisition of Warner Brothers Discovery (WBD). The entertainment conglomerate confirmed it has received interest from “multiple parties” for parts of its business.

Analysts have suggested that Netflix could be among the potential suitors. Benes noted that if Warner Brothers Discovery proceeds with plans to split its operations, its film studio assets could make an attractive target. “For Netflix, acquiring the studio would complement its content library without adding slower-moving TV networks,” he said.

However, Netflix executives were cautious when discussing acquisition possibilities. Co-chief executive Ted Sarandos emphasized that the company’s focus remains on organic growth rather than large-scale mergers.

“It’s our responsibility to look at every significant opportunity,” Peters added. “We have a clear framework to evaluate those opportunities, and we’ll do whatever we think is best for the company and our members.”

While the Brazil-related expense weighed on the latest quarter, analysts expect Netflix’s diversified strategy combining blockbuster originals, global reach, and growing ad-supported tiers to keep it on a strong long-term trajectory. Still, the setback was a reminder that even dominant players in the streaming industry aren’t immune to external financial risks.

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