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Netflix shares fell despite the streamer increasing revenues by close to a fifth in the third quarter, as a dispute with Brazilian tax authorities cut into its profits.
The US media group on Tuesday reported that revenue grew 17.2 per cent year-over-year in the quarter to $11.5bn, driven by membership growth, higher pricing and increased advertising revenue, while net income rose from $2.4bn to $2.5bn.
But Netflix shares fell more than 5 per cent in after-market trading as it reported operating margin of 28 per cent, below guidance of 31.5 per cent, owing to costs from an ongoing dispute with Brazilian tax authorities.
Netflix said that without this expense operating margins would have been ahead of forecast. The dispute relates to a business tax in Brazil that has been disputed by Netflix in court since 2022.
The streaming group has reported a strong run of growth, although analysts are looking to see if costly investments in gaming and the rollout of cheaper membership tiers supported by advertising will drive future growth and margins.
Netflix did not break out the numbers but said it was on track to more than double ad revenue in 2025, albeit off a relatively small base.
For the full year, Netflix expects $45.1bn in revenue, up 16 per cent, in-line with prior forecasts. The company warned the tax dispute in Brazil would also hit its margins for the rest of the year.
Its earnings were boosted by KPop Demon Hunters, Netflix’s most successful movie ever, as well as the second season of Wednesday. The final three months of 2025 are also expected to see growth on the return of popular series such as Stranger Things and The Witcher.
Netflix said in its results that it was now using generative AI to improve the quality of recommendations and content discovery features.
The results for the three months to the end of September precede the call by Elon Musk to cancel Netflix subscriptions owing to what the billionaire called its “woke” content — which sent its share price lower earlier this month. Its shares have since recovered.
Netflix is one of the potentially interested parties in Warner Brothers Discovery, which earlier on Tuesday said that it had kicked off a review of options that include a partial or full sale of the US media group after “receiving interest from multiple parties”.
However, Netflix co-chief executive Greg Peters has played down the prospect of a bid for Warner, telling a Bloomberg conference earlier this month that the streamer was more of a “builder rather than buyer”.
Bank of America analyst Jessica Reif Ehrlich warned that further media consolidation could intensify competition for Netflix, with David Ellison’s Paramount seen as among the frontrunners to buy Warner Brothers.
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