By Lisa Richwine
LOS ANGELES (Reuters) – Netflix missed Wall Street’s third-quarter profit targets due to an unexpected expense stemming from a dispute with Brazilian tax authorities and offered guidance slightly above Wall Street projections for the rest of the year.
The streaming service on Tuesday reported net income of $2.5 billion and diluted earnings per share of $5.87 for the July-September period, during which the animated film “K-Pop Demon Hunters” became the most-watched film in Netflix history. Analysts were expecting $3.0 billion and $6.97, according to LSEG.
Revenue was as expected at $11.5 billion.
Netflix is seeking growth in new areas such as advertising and video games after attracting more than 300 million customers worldwide. It faces competition from YouTube, Amazon’s Prime Video, Disney+ and others.
Netflix said its operating margin for the third quarter was 28%. Excluding the Brazilian tax charge of approximately $619 million, operating margin would have exceeded the company’s forecast of 31.5%, the company said.
“We do not expect this matter to have a material impact on future results,” Netflix said in its quarterly letter to shareholders.
For the fourth quarter, Netflix forecast revenue of $11.96 billion, compared to Wall Street’s forecast of $11.90 billion. It forecasts diluted earnings per share slightly above analysts’ targets, at $5.45.
The company will air the final season of one of its biggest hits, “Stranger Things,” in November and December and will live stream two National Football League games over Christmas.
“We are ending the year with good momentum and have an exciting fourth quarter,” Netflix said in its letter.
Earlier this year, Netflix stopped reporting subscriber numbers and urged investors to focus on revenue and profits.
It has expanded into video games and advertising, two areas that have contributed little to revenue so far, according to analysts and investors.
(Reporting by Lisa Richwine; editing by Richard Chang)
