Netflix, the streaming giant that has shaped the way the world consumes entertainment, delivered a third-quarter earnings report on October 21, 2025, that left Wall Street and investors with mixed feelings. While the company posted record revenue and continued to innovate in its offerings, an unexpected $619 million expense tied to a Brazilian tax dispute dragged down profits and sent shares tumbling—their sharpest drop in more than seven months, according to Reuters and Bloomberg.
For the July-through-September quarter, Netflix reported revenue of $11.5 billion, a 17% increase from the same period last year, matching analyst forecasts and marking the company’s best-ever quarter for ad sales. The surge was fueled by robust viewership for Korean-themed hits like the animated film "K-Pop Demon Hunters"—which became the most-watched movie in Netflix history—and the live boxing event "Canelo vs. Crawford," as reported by CNBC and Business Insider. Despite these successes, net income came in at $2.5 billion, or $5.87 per share, well below analyst expectations of $3.0 billion and $6.97 per share, respectively, according to LSEG and FactSet Research. Operating income landed at $2.55 billion, missing both the company’s own forecast and Wall Street’s consensus.
The culprit? An ongoing dispute with Brazilian tax authorities. As detailed in Netflix’s shareholder letter and earnings call, the company was blindsided by a roughly $619 million charge after Brazil’s high court ruled in August that Netflix would likely be subject to a 10% transactions tax, following a case involving another firm. Netflix’s finance chief Spencer Neumann explained that the expense covered amounts incurred from 2022 through the latest quarter. The company emphasized that, "Absent this expense, we would have exceeded our Q3'25 operating margin forecast." Without the Brazilian tax hit, Netflix’s operating margin would have surpassed its 31.5% guidance, but instead, it ended up at 28%.
Investors, accustomed to Netflix’s fast-paced growth and regular earnings beats, were not impressed. Shares, which had climbed 39% in 2025 prior to the release, dropped 5.6% to $1,171.24 in after-hours trading on October 21, and slid more than 6% in extended trading—the steepest decline since early 2025, as noted by Reuters and Euronews. The drop also broke Netflix’s six-quarter streak of surpassing analyst profit projections.
Analysts were divided on what the results signaled. Thomas Monteiro of Investing.com expressed skepticism, suggesting, "The truth is that the company failed to deliver the kind of growth we’ve grown used to over the past couple of years," and hinted that the tax expense might be masking a slowdown in subscriber and ad revenue growth. On the other hand, Jeremy Mullin of Zacks downplayed concerns, stating that Netflix’s "underlying story remains solid." Paolo Pescatore of PP Foresight called it "another robust quarter, despite a blip due to an unforeseen expense."
Netflix has stopped disclosing its subscriber numbers, a move it made earlier in 2025 to steer investor focus toward revenue and profit. Still, management estimates that its worldwide audience—including multiple viewers per account—is approaching 1 billion, up from roughly 302 million paying customers at the end of last year, according to company statements and reporting by The Associated Press and Reuters. The company’s dominance among paid streaming services remains unchallenged, with Nielsen data showing Netflix captured an 8.6% viewership share on US-based smart TVs from July through September, well ahead of rivals like Amazon Prime Video and Disney+, though still trailing YouTube’s 13%.
To maintain its lead in an increasingly competitive market, Netflix is pushing into new territory. The company’s ad-supported tier, introduced three years ago, delivered its best sales quarter ever, with US advertiser commitments doubling, according to Business Insider and Netflix’s own disclosures. While advertising still represents a small slice of Netflix’s overall revenue—S&P forecasts about $1.1 billion in ad sales for 2025, or just 2% of projected total revenue—the platform expects this figure to more than double from last year. Netflix is also expanding into live sports, video games, and, starting in 2026, video podcasts through a partnership with Spotify.
Warner Bros Discovery’s announcement that it may sell all or part of its holdings (including HBO, DC Studios, and CNN) has sparked speculation that Netflix could be a bidder. CNBC and Bloomberg reported that Netflix is among the parties interested in examining Warner Bros’ assets. On the company’s earnings call, Co-CEO Ted Sarandos addressed potential mergers and acquisitions, saying, "It’s true that historically, we’ve been more builders than buyers. And we have plenty of runway for growth without fundamentally changing that playbook." He added, "Nothing is a 'must-have' for us to hit our goals," but left the door open for "selective M&A," clarifying that Netflix has no interest in legacy cable TV networks but would consider intellectual property acquisitions. Co-CEO Greg Peters echoed that media consolidation among competitors "does not change in and of itself, at least our view, the competitive landscape."
Netflix is also keeping a close eye on generative artificial intelligence, which is upending the media landscape by enabling the creation of short-form video content. Sarandos commented that such technology is more likely to siphon viewers from user-generated content platforms like TikTok and YouTube, rather than from Netflix’s professionally produced shows and films. "It takes a great artist to make something great," he said, underscoring the company’s belief in the enduring value of high-quality storytelling. Peters added that Netflix plans to use AI tools to improve its product, content, and advertising, but does not see generative AI as a major competitive threat for now.
Looking ahead, Netflix forecasts revenue of $11.96 billion for the fourth quarter, slightly ahead of Wall Street’s $11.90 billion projection, and expects diluted earnings per share of $5.45—a penny above analyst targets. The company is banking on a strong finish to the year, with the final season of "Stranger Things" set for release and two live NFL games to stream on Christmas. "We’re finishing the year with good momentum and have an exciting Q4 slate," Netflix wrote in its quarterly letter to shareholders.
Despite the turbulence, Netflix remains the world’s most valuable entertainment company and continues to innovate at a breakneck pace. But as it juggles growth in advertising, gaming, and new media formats, some analysts, like Mike Proulx of Forrester Research, warn that "if the company goes too broad to become all things entertainment, it risks diluting its core." For now, though, Netflix seems determined to walk that tightrope, betting that its mix of blockbuster content and strategic expansion will keep it ahead of the pack.
