Netflix shares fall as Brazil tax dispute weighs on profits

The report failed to impress investors accustomed to the streaming video pioneer’s rapid growth. Shares of Netflix, which had risen 39% this year before the earnings release, fell 5.6% to $1,171.24 in after-hours trading Tuesday.

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Netflix co-CEO Ted Sarandos, in response to analyst questions about possible media consolidation, said the company “can and will be selective” about acquisition targets. He said the company had no interest in owning existing media networks, but would evaluate opportunities to purchase intellectual property.

“Nothing is necessary to achieve our business goals,” Sarandos said.

Co-CEO Greg Peters said he didn’t think media industry consolidation would make things more difficult for Netflix.

“Seeing some of our competitors potentially getting bigger through (mergers and acquisitions) doesn’t in itself change, at least from our perspective, the competitive landscape,” Peters said.

Netflix reported net profit of $2.5 billion and diluted earnings per share of $5.87 from July to September, 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, respectively, according to LSEG.

Revenue was as expected at $11.5 billion.

Netflix reported an operating margin of 28% for the third quarter. Without the Brazilian tax charge of about $619 million, the margin would have exceeded the company’s 31.5% forecast, he said, adding that it did not expect the matter to have a material impact on future results.

Paolo Pescatore, an analyst at PP Foresight, said he thought the tax issue was weighing on Netflix’s stock.

“All things considered, it was another strong quarter, despite a mishap due to an unforeseen expense,” Pescatore said.

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.

For the third quarter, Netflix said it recorded its best ad sales quarter ever, but did not disclose numbers.

“This gives the impression that the sustained revenue growth achieved this quarter, and expected for the next quarter, will continue to come primarily from subscription fees,” said Ross Benes, an analyst at eMarketer.

Netflix will stream 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 strong momentum and have an exciting fourth quarter,” Netflix said in its quarterly letter to shareholders.

Earlier this year, Netflix stopped reporting subscriber numbers and urged investors to focus on revenue and profits.

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