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Netflix Inc. shares fell more than 6% on Tuesday, 21 October, after the streaming giant missed Wall Street’s third-quarter earnings expectations due to an unexpected expense from a Brazilian tax dispute. The stock closed down 6.5% at $1,160 by 7:59 pm (EDT) on Tuesday, according to MarketWatch data. Netflix reported quarterly operating income of $3.24 billion, approximately $400 million below forecasts and analyst estimates, Bloomberg reported. What is Netflix’s Brazilian tax dispute? In 2022, Netflix paid roughly $619 million to settle a multi-year tax dispute with Brazilian authorities. Although the company had disclosed the potential risk in earlier filings, it did not include the expense in its earnings guidance. Netflix noted that without this tax outlay, quarterly results would have exceeded expectations. Impact on future results Netflix said the Brazilian tax matter is not expected to have a material impact on future earnings. Programming highlights Despite the setback, Netflix benefited from a strong content lineup, including the popular movie KPop Demon Hunters, the second season of Wednesday, a sequel to the comedy Happy Gilmore, and a high-profile boxing match between Canelo Álvarez and Terence Crawford. Investor concerns: viewer time and AI content Investors remain cautious about stagnating viewer time on the platform and the potential competition from AI-generated video content. Most streaming growth currently occurs on free platforms like YouTube, Roku, and Tubi, Bloomberg reported. Netflix, however, highlighted record subscriber engagement for the quarter. The company’s content slate for the final three months of the year includes the last season of Stranger Things, a sequel to Knives Out, and new films from Guillermo del Toro and Kathryn Bigelow. Executive insights Co-CEO Ted Sarandos stated that Netflix’s total global audience, including multiple viewers per subscriber account, is approaching 1 billion. Co-CEO Greg Peters added, “We have a better understanding of the streaming business than any of our competitors.” Financial performance and outlook Netflix generated $2.66 billion in free cash flow during Q3, exceeding Wall Street estimates, and raised its full-year forecast to roughly $9 billion. The company plans to use some of this capital for share repurchases, content investment, and potential mergers and acquisitions. Bloomberg reported that Netflix is eyeing certain assets from Warner Bros. Discovery Inc.
