Netflix’s third quarter was shaping up to be another standout performance until an unexpected tax bill from Brazil disrupted the narrative.
The company reported revenue of $11.5 billion, a 17% year-over-year increase that met both internal guidance and Wall Street expectations. However, a surprise $619 million tax-related expense tied to a dispute with Brazilian authorities dragged down operating income and earnings, breaking Netflix’s six-quarter streak of beating analyst estimates.
Operating income reached $2.55 billion, up 7.7% from the previous year, but earnings per share landed at $5.87. That figure missed both Netflix’s own guidance of $6.87 and analyst expectations of $6.94. The market responded quickly, with Netflix shares falling 6% in after-hours trading.
Outside of the tax hit, the business continues to show strong momentum. Netflix had its “best ad sales quarter ever,” doubling upfront commitments from U.S. advertisers. The ad-supported tier is proving to be a key growth driver.
Engagement remains high. Nielsen reported that Netflix had its strongest quarter of smart TV viewership in the U.S. since tracking began in May 2021. The platform averaged an 8.6% share of TV usage from July through September, far ahead of other paid streamers. Korean originals like Squid Game and Kpop Demon Hunters were among the key drivers of that engagement.
Netflix still trails YouTube in overall smart TV share. YouTube posted a 13% share in the same period, showing that Netflix’s biggest engagement competitor remains outside the traditional studio ecosystem. To help close that gap, Netflix is experimenting with new formats like video podcasts and onboarding creator talent, including YouTube star Ms. Rachel.
Though Netflix no longer discloses subscriber numbers, analysts estimate the service now has roughly 315 million global members. That’s up from 302 million at the end of last year, reinforcing the company’s decision to shift investor focus from subscriber growth to revenue and profitability.
On the M&A front, Netflix was briefly pulled into speculation after Warner Bros. Discovery signaled it may sell all or part of its holdings, including HBO, DC Studios, and CNN. However, co-CEO Ted Sarandos was quick to address the topic during the earnings call.
Sarandos said Netflix would remain disciplined and has no interest in legacy media networks. “It’s true that historically, we’ve been more builders than buyers,” he said. “We think we have plenty of runway for growth without fundamentally changing that playbook.”
Despite the earnings miss, Netflix is clearly operating from a position of strength. The ad tier is scaling. Engagement is growing. And the company remains focused on its own strategic path, even as others explore consolidation.
The Brazilian tax dispute was a reminder that global expansion comes with operational and regulatory risk. But the overall trajectory of the business still points forward.
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