What Happened?
Shares of streaming video giant Netflix (NASDAQ: NFLX) fell 9.7% in the morning session after the company reported third-quarter results overshadowed by a large, unexpected tax expense in Brazil, leading to an earnings miss.
While revenue grew 17.2% year-over-year to $11.51 billion, meeting forecasts, its earnings per share of $5.87 fell short of analyst estimates. The shortfall stemmed from a one-time tax charge of about $619 million related to an ongoing dispute in Brazil. This unexpected expense was not included in the company's prior forecast and dragged its operating margin down to 28.2%.
Although the company stated the tax issue would not materially impact future results, the significant headline profit miss concerned investors. However, looking ahead, guidance was in line with Wall Street forecasts. Despite the initial negative market reaction, some analysts maintained a bullish outlook, with Bank of America reiterating a Buy rating while noting that the stock will be fueled by "continued positive subscriber and earnings momentum in addition to evolving advertising and live opportunities.".
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What Is The Market Telling Us
Netflix’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago when the stock gained 3.3% on the news that positive analyst sentiment built ahead of its upcoming third-quarter earnings report, with Bernstein reiterating its "Outperform" rating and a $1,390 price target on the stock. The investment firm noted it expected Netflix's revenue and margins to meet or beat expectations. Bernstein also projected subscriber growth would exceed 6 million for the quarter, ahead of the 5.6 million consensus estimate, citing healthy advertising trends and the impact of previous price changes. The optimism was shared by other analysts, with UBS reiterating a 'Buy' rating and a $1,495 price target. Wall Street broadly anticipated strong results, with forecasts for revenue to grow by about 17% and earnings per share to jump by roughly 29% compared to the previous year. The positive buzz was also tied to the company's successful ad-tier monetization and its push into new formats like interactive content.
Netflix is up 26% since the beginning of the year, but at $1,117 per share, it is still trading 16.6% below its 52-week high of $1,339 from June 2025. Investors who bought $1,000 worth of Netflix’s shares 5 years ago would now be looking at an investment worth $2,303.
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