Netflix shares declined after its Q3 earnings per share of $5.87 missed analyst consensus, primarily due to an unexpected Brazilian tax charge, despite revenue of $11.51 billion growing 17% year-over-year and meeting expectations. While the one-time tax issue led to a slight reduction in the full-year operating margin forecast, the company reported strong subscriber and ad revenue growth, with Q3 free cash flow at $2.7 billion and a full-year projection of $8-$8.5 billion, suggesting continued operational strength despite the earnings miss.
Netflix (NFLX) reported Q3 revenue of $11.51 billion, a 17% year-over-year increase, aligning with analyst consensus. However, Q3 EPS of $5.87 significantly missed the $6.97 consensus, primarily due to an unexpected, one-time Brazilian tax charge not included in prior guidance. This specific legal dispute resulted in an EPS miss exceeding $1, despite the company's underlying operational strength. Despite the EPS miss, Netflix demonstrated robust operational performance, generating $2.7 billion in free cash flow for the quarter and projecting $8-$8.5 billion for the full year. Revenue growth was strong across all geographies, notably Asia-Pacific at 21% and US/Canada at 17%. The company is actively diversifying revenue streams through a burgeoning ad business, on track to double ad revenue this year, and leveraging AI in its adtech platform. Management forecasts continued growth, with Q4 revenue expected to increase by 17% and full-year revenue at $45.1 billion, at the upper end of previous guidance. While the full-year operating margin was slightly lowered from 30% to 29% due to the tax issue, the company maintains its long-term trajectory. NFLX currently trades at a forward P/E of 34.5x 2026 estimates, reflecting a premium valuation even after the recent pullback.
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