Netflix Shares Sell Off After Q3 Earnings Miss, Warning About Brazilian Tax Dispute

Netflix fell short of Wall Street analysts’ earnings expectations in the third quarter and said a dispute with Brazilian tax authorities kept operating margins from meeting its guidance.

Revenue came in on target during the June-to-September period, reaching $11.51 billion.

Earnings per share of $5.87 on a diluted basis came in more than a dollar shy of analysts’ consensus outlook for $6.97.

In its quarterly letter to shareholders, the company said its operating margin of 28% undershot guidance of 31.5% “due to an expense related to an ongoing dispute with Brazilian tax authorities that was not in our forecast. Absent this expense, we would have exceeded our Q3’25 operating margin forecast. We don’t expect this matter to have a material impact on future results.”

Shares in Netflix slumped on the earnings miss in after-hours trading, falling as much as 7% before stabilizing a bit and remaining in the red. The stock had been on a tear, rising almost 40% in 2025 to date and recently trading above $1,200, close to its all-time high.

Wednesday‘s Season 2 premiere in September drove significant viewership to close out the quarter. The series racked up more than 7 billion viewing minutes during the month, according to Nielsen, more than twice the No. 2 title.

The Addams Family spinoff was a key part of Netflix’s pitch to advertisers in the upfront, and helped deliver the best ad revenue quarter in the company’s history. In the letter, the company said it remains on track to double ad revenue for the full year compared with 2024.

Higher ad revenue, along with price increases and subscriber growth, drove 17% year-over-year revenue growth, the company said.

A lengthy section of the letter outlined a strikingly optimistic outlook on the impact of AI on the company and its customers. In addition to production, the company said it uses AI and machine learning already to fine-tune its user interface, place relevant ads on shows across its subscriber footprint, localize promotional assets and improve other functions.

“Given our significant data assets and at-scale products and business processes, we are very well positioned to effectively leverage ongoing advances in AI,” the letter said. “We believe Generative AI presents a significant opportunity for us to deliver benefits to our members, creators, and business.”

As Netflix and other major streamers and studios approach another negotiation with above-the-line unions, which are all on edge over AI, Netflix’s letter characterized the technology as “empowering” for creators. GenAI tools can “help them achieve their visions and deliver even more impactful titles for members,” it said. “For example, in Happy Gilmore 2, filmmakers used GenAI coupled with ML and Eyeline’s proprietary volumetric capture technologies to de-age characters during the opening flashback scene. And the producers of Billionaires’ Bunker used various GenAI tools during pre-production, including for pre-visualization to explore wardrobe and set designs.”

Netflix recently issued guidelines for the use of AI in production, the letter recalled.