Netflix missed Wall Street’s third-quarter profit targets due to an unexpected expense stemming from a dispute with Brazilian tax authorities, although it offered a slightly higher outlook than Wall Street’s projections for the rest of the year.
The report did not impress investors accustomed to the rapid growth of the video streaming pioneer.
Netflix shares, which had risen 39% this year before the earnings report, fell 6.3% to $1,163.80 in after-hours trading Tuesday.
Netflix recorded net income of $2.5 billion between July and September, a period in which the K-Pop animated film Demon Hunters became the most watched in the platform’s history. Analysts expected $3 billion.
Revenue was in line with forecasts at $11.5 billion.
Netflix is looking to grow in new areas, such as advertising and video games, after attracting more than 300 million customers around the world.
It faces competition from YouTube, Amazon’s Prime Video, Disney+, and others.
The media industry is facing major changes, such as the possible sale of the giant Warner Bros. Discovery, and the rise of generative artificial intelligence with the ability to produce short-form videos.
Netflix reported an operating margin of 28% for the third quarter. Without the Brazilian tax expense of about $619 million, the margin would have exceeded the company’s forecast of 31.5%, it said, adding that it did not expect the matter to have a significant impact on future results.
PP Foresight analyst Paolo Pescatore said he believed the tax issue had weighed on Netflix shares. “All things considered, this has been another solid quarter, despite a small bump due to an unforeseen expense,” he said.
For the fourth quarter, Netflix expects revenue of $11.96 billion, compared to Wall Street’s forecast of $11.9 billion. It forecast diluted earnings per share one cent above analyst targets at $5.45.
