NFLX Q3 Deep Dive: Healthy Subscriber Growth, Profit Miss Linked to Brazilian Tax Charge

Streaming video giant Netflix (NASDAQ: NFLX) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 17.2% year on year to $11.51 billion. The company expects next quarter’s revenue to be around $11.96 billion, close to analysts’ estimates. Its GAAP profit of $5.87 per share was 15.8% below analysts’ consensus estimates.

Is now the time to buy NFLX? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Netflix’s third quarter saw a negative market reaction, with management attributing the underperformance in profit to an unexpected Brazilian tax expense that impacted operating income. Co-CEO Gregory Peters explained, “Absent the Brazilian tax matter, we would have exceeded our Q3 2025 operating income and operating margin forecast.” The company nonetheless highlighted strong engagement, including its best ad sales quarter ever and record share of TV viewing time in the US and UK, driven by content hits like K-Pop Demon Hunters and live events such as the Canelo Crawford fight. Management described these as indicators of continued competitive progress, despite the margin compression this quarter.

Looking ahead, management believes Netflix’s guidance is underpinned by ongoing subscriber growth, further expansion of its advertising business, and a robust content pipeline set for late 2025 and 2026. CFO Spencer Neumann stated the company’s financial objectives are “to sustain healthy revenue growth, expand margins, and increase free cash flow.” Co-CEO Theodore Sarandos also emphasized that upcoming releases—including major returning series and exclusive film events—are expected to maintain engagement momentum. The company is prioritizing targeted investments in technology, original content, and advertising to support these goals while monitoring potential industry consolidation and AI-driven competition.

Key Insights from Management’s Remarks

Management attributed quarterly results to higher engagement, record ad sales, and a one-time Brazilian tax charge that impacted profitability. Progress on interactive content, live events, and global entertainment partnerships were also highlighted as drivers of business momentum.

• Brazilian tax expense impact: CFO Spencer Neumann explained a unique Brazilian tax charge significantly weighed on operating margin and profit, but stressed this was a non-recurring item covering multiple past years. Management does not expect a similar impact in future quarters.
• Ad business momentum: Netflix recorded its best ad sales quarter to date, with ad revenues more than doubling year over year. Co-CEO Gregory Peters noted that both upfront commitments and programmatic revenue streams are accelerating, driven by new ad formats, expanded measurement tools, and broader advertiser diversity through partnerships like Amazon DSP.
• Content engagement strength: The quarter saw record viewing shares in the US (8.6%) and UK (9.4%), powered by successful original films such as K-Pop Demon Hunters and high-profile live events like the Canelo Crawford boxing match. Management emphasized that a diversified programming slate continues to drive engagement and acquisition.
• Interactive and gaming expansion: The company increased its investment in interactive content and games, launching party games on TV and introducing features like real-time voting in live events. Peters described this as part of a broader push to deepen member engagement and retention by expanding entertainment options beyond traditional series and films.
• Selective M&A and industry consolidation: While acknowledging ongoing media industry consolidation, leadership reiterated a focus on organic growth and disciplined, opportunity-driven M&A. Sarandos stated there is “no change” to Netflix’s strategy of prioritizing original content, with third-party licensing and selective M&A used only to complement the core offering.

Drivers of Future Performance

Netflix’s outlook is shaped by ongoing subscriber growth, the scaling of its advertising business, and a steady pipeline of anticipated original content releases.

• Advertising expansion: Management expects continued growth in ad-supported plans, emphasizing improvements in ad technology, measurement, and new interactive formats. Peters highlighted plans for broader demand partnerships, more targeting capabilities, and the introduction of ad interactivity, positioning advertising as a growing profit driver.
• Content pipeline and engagement: The upcoming quarters feature major franchise releases and high-profile live events, such as new seasons of popular series and global sporting events. Sarandos anticipates this slate will help sustain engagement and mitigate churn, with management investing in data-driven content selection and international market tailoring.
• Technology and AI innovation: Leadership sees opportunities to leverage artificial intelligence and machine learning (ML) for operational efficiency, enhanced product experiences, and content creation tools. While the competitive landscape is changing with new AI-driven content, Netflix is prioritizing targeted internal investments and integrating external solutions to maintain a competitive edge.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be closely monitoring (1) continued adoption and monetization of Netflix’s ad-supported plans, (2) engagement trends driven by the upcoming slate of original series and live events, and (3) the impact of new interactive features and gaming initiatives on user retention. Progress on leveraging AI for product and content innovation will also be a key area of focus.

Netflix currently trades at $1,146, down from $1,241 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.

The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.