Netflix's stock (NFLX) experienced a sharp decline, falling $80, or 6.48%, following the release of its third-quarter 2025 earnings report. The downturn was primarily attributed to an earnings miss, influenced by an unexpected expense related to an ongoing tax dispute with Brazilian authorities.
The company reported Q3 revenue of $11.51 billion, largely in line with the street's estimates. However, the operating margin of 28% fell short of the anticipated 31.5%, due to the Brazilian tax matter.
Netflix clarified that, excluding this expense, it would have exceeded its operating margin forecast, and does not expect this matter to have a material impact on future results.
EPS is where the big miss occurred, with the company posting $5.45 per share against the expected $6.97.
Despite the earnings miss, Netflix's financial performance showcased positive trends in other areas. The company revised its full-year 2025 revenue projection to $45.1 billion, representing a 16% year-over-year growth, but not much higher than the previous range ($44.8B-$45.2B). Free cash flow is now expected to be approximately $9 billion, an increase from the prior forecast of $8 billion to $8.5 billion, reflecting the timing of cash payments and lower content spend.
A key area of growth for Netflix is its advertising business. The company is on track to more than double its ad revenue in 2025, building on the progress made in its ad-supported tier. Netflix has achieved sufficient scale in all 12 of its ad markets and enhanced its capabilities for advertisers by launching its own first-party ad tech stack, the Netflix Ads Suite. The company also successfully concluded its U.S. upfront with commitments more than doubling this year, indicating strong advertiser interest.
Netflix also reported record TV view share in Q3 in the United States and the United Kingdom, two of its largest markets. According to Nielsen and Barb data, from Q4 2022 to Q3 2025, Netflix's quarterly TV view share grew by 15% in the U.S. and 22% in the U.K., highlighting its increasing dominance in the streaming landscape.
Price Targets
Looking ahead, Netflix anticipates Q4 revenue of $11.96 billion, with an expected revenue growth of 17%, driven by growth in members, pricing, and ad revenue. The forecast for the 2025 operating margin has been adjusted to 29%, slightly below the previous estimate due to the Brazilian tax issue. Netflix CEO refrained from providing any 2026 guidance.
The market's reaction to the earnings miss underscores the surprise at the scale of the miss. However, the company's strong revenue growth, expanding advertising business, and increasing TV view share point to positive long-term prospects.
Bull Case:
- Full-year 2025 revenue projection revised up to $45.1 billion, a 16% year-over-year increase.
- Free cash flow forecast increased to approximately $9 billion for 2025.
- The advertising business is on track to more than double its revenue in 2025.
- Achieved record TV view share in Q3 in key markets like the U.S. and the U.K.
- Anticipates strong Q4 revenue growth of 17%, driven by members, pricing, and ad revenue.
Bear Case:
- The stock fell sharply by 6.48% following the Q3 earnings announcement.
- Missed earnings expectations due to an unexpected expense from a tax dispute in Brazil.
- Q3 operating margin of 28% fell short of the 31.5% forecast.
- The full-year 2025 operating margin forecast was adjusted down to 29%.
- The CEO refrained from providing any 2026 guidance, creating uncertainty for investors.
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