Netflix shares fell around 7% in extended trading on Tuesday after the streaming giant reported a third-quarter earnings miss, attributing the shortfall to an unexpected tax expense in Brazil. Despite strong revenue growth, the one-time charge weighed on quarterly profits and investor sentiment.

The company said the expense resulted from a 10% tax imposed by Brazilian authorities on payments made by local entities to operations outside the country. Netflix noted that the tax wasn’t previously factored into forecasts but was charged to the quarter after management determined it was “reasonably likely” the company would lose its legal challenge over the issue.

“It’s not a tax that’s specific to Netflix. It’s not even specific to streaming,” said Chief Financial Officer Spence Neumann. “Absent this expense, we would have exceeded our Q3 operating income and margin forecast. We don’t expect this matter to have a material impact going forward.”

Earnings and Revenue Highlights

For the quarter ended September 30, Netflix reported the following results compared to estimates from LSEG:

• Earnings per share: $5.87 vs. $6.97 expected
• Revenue: $11.51 billion, matching expectations

Netflix’s net income rose to $2.55 billion ($5.87 per share) from $2.36 billion ($5.40 per share) a year earlier. Revenue climbed 17% year-over-year, driven by subscriber growth, price adjustments, and rising ad revenue.

For the full year, the company forecasts $45.1 billion in revenue, up 16% from last year — consistent with its earlier guidance of 15–16% growth. However, Netflix trimmed its operating margin forecast to 29% from 30%, citing the Brazilian tax adjustment.

Advertising Business Reaches New Heights

Netflix also announced it achieved its best ad sales quarter to date, with co-CEO Greg Peters stating the platform is on track to more than double ad revenue in 2025. Despite this milestone, Netflix didn’t disclose specific ad revenue figures.

“Netflix had its best ad sales quarter to date, but still did not provide a figure for how large the ad business is,” said Ross Benes, senior analyst at eMarketer. “This suggests that sustained revenue growth continues to come primarily from subscription fees.”

Netflix’s ad-supported tier, which saw a price hike in January, has been gaining traction, helping the company diversify beyond its traditional subscription model.

Content Pipeline Fuels Optimism

Looking ahead, Netflix’s fourth-quarter lineup is packed with high-profile releases expected to drive subscriber engagement, including:

• The final season of “Stranger Things”
• New seasons of “The Diplomat” and “Nobody Wants This”
• Guillermo del Toro’s “Frankenstein”
• Rian Johnson’s “Wake Up Dead Man: A Knives Out Mystery”

The streamer also continues to benefit from the runaway success of “KPop Demon Hunters”, which has become Netflix’s most-watched film ever, amassing over 325 million views since its release in June.

To capitalize on the film’s popularity, Netflix announced partnerships with Hasbro and Mattel to launch “KPop Demon Hunters” dolls, plush toys, and themed games, set for release in spring 2026. The company also plans to explore live experiences, publishing, beauty, lifestyle, and food and beverage tie-ins connected to the franchise.

The film will even return to theaters during the Halloween weekend, underscoring Netflix’s growing ambitions in cross-media entertainment and consumer products.

Outlook

Despite the short-term earnings setback, Netflix’s strong revenue trajectory, expanding ad business, and robust content lineup suggest continued growth momentum heading into 2026. However, investors remain cautious as regulatory and tax challenges abroad could pose intermittent headwinds to the company’s profitability.