Netflix posts record advertising quarter, but Brazil tax charge dents earnings

New Delhi: Netflix Inc. reported robust revenue growth and its strongest-ever quarter for advertising sales in the third quarter of 2025, though a hefty tax expense in Brazil led to an earnings shortfall that sent shares tumbling in after-hours trading. 

Revenue for the July-September period climbed 17% year-over-year to $11.51 billion, aligning with the company's guidance but slightly impacted by unfavourable foreign exchange movements. 

Operating income rose 12% to $3.25 billion, while net income increased 8% to $2.55 billion, or $5.87 per diluted share, up 9% from the prior year but below Netflix's own forecast of $6.87. 

The miss was primarily attributed to a $619 million expense stemming from an ongoing dispute with Brazilian tax authorities over non-income tax assessments, which reduced the operating margin to 28.2% from a guided 31.5%. 

Excluding this one-time hit, the margin would have surpassed the forecast, and Netflix emphasised that the issue is not expected to materially affect future results.

The results underscore Netflix's resilience amid intensifying competition in streaming, with growth fueled by steady membership gains—though the company ceased reporting quarterly subscriber additions starting in Q1 2025, noting a global total exceeding 300 million paid memberships. 

Engagement hit record highs, capturing the highest quarterly TV view share ever in the US and UK, up 15% and 22% respectively since Q4 2022, according to Nielsen and Barb data. 

Price hikes and the maturation of its ad-supported tier also contributed, with the latter delivering Netflix's best ad sales quarter to date. The company is on pace to more than double its advertising revenue for the full year, having doubled US upfront commitments and fully deployed its Netflix Ads Suite for enhanced targeting and partnerships.

Content remained a key driver, with standout titles like the animated musical "KPop Demon Hunters" amassing 325 million views—Netflix's most popular film ever—and spawning franchise expansions including toy deals with Mattel and Hasbro, apparel lines, and Halloween theatrical re-releases. 

Other hits included "Wednesday" Season 2 (114 million views), "Happy Gilmore 2" (126 million views, setting a Nielsen streaming record), and live events like the Canelo vs. Crawford boxing match, which drew over 41 million viewers and generated 950 million social impressions. Looking ahead, Q4 promises high-profile releases such as the final season of "Stranger Things," NFL Christmas games, and films from directors like Guillermo del Toro and Rian Johnson.

For the fourth quarter, Netflix anticipates revenue of $11.96 billion, a 17% increase year-over-year, with diluted EPS of $5.45 and an operating margin of 23.9%. Full-year 2025 guidance calls for revenue of $45.1 billion (16% growth) and a 29% operating margin, adjusted downward from 30% due to the tax impact, alongside free cash flow of approximately $9 billion.