Netflix shares sell off after third-quarter earnings miss and warning over Brazil tax dispute

Netflix fell short of Wall Street analysts’ expectations in the third quarter and said a dispute with Brazilian tax authorities had prevented its operating margins from reaching forecasts.

Revenue was in line with targets between June and September, reaching $11.51 billion.

Earnings per share of $5.87 on a diluted basis was more than a dollar below analysts’ consensus forecast of $6.97.

In its quarterly letter to shareholders, the company said its operating margin of 28% was lower than forecast of 31.5% “due to an expense related to an ongoing dispute with Brazilian tax authorities that was not included in our forecast. Without this expense, we would have exceeded our third quarter 2025 operating margin forecast. We do not expect this matter to have a significant impact on future results.

Netflix shares fell on the lack of after-hours profits, falling as much as 7% before stabilizing a bit and remaining in the red. The stock was on a strong rise, rising nearly 40% in 2025 so far and recently trading above $1,200, near its all-time high.

WednesdayThe season 2 premiere in September attracted a significant number of viewers to close out the quarter. The series racked up more than 7 billion minutes of viewing during the month, according to Nielsen, more than double the No. 2 title.

The Addams Family spinoff was a key part of Netflix’s pitch to advertisers from the start and helped generate the best quarter of ad revenue in the company’s history. In the letter, the company said it remains on track to double its full-year advertising revenue compared to 2024.

Increased advertising revenue, along with price increases and subscriber growth, led to 17% year-over-year revenue growth, the company said.

A lengthy section of the letter presents a surprisingly optimistic outlook on AI’s impact on the company and its customers. In addition to production, the company said it already uses AI and machine learning to refine its user interface, place relevant ads on broadcasts across its subscribers, localize promotional assets and improve other functions.

“Given our significant data assets and large-scale business products and processes, we are very well positioned to effectively leverage ongoing advances in AI,” the letter said. “We believe generative AI presents a significant opportunity for us to deliver benefits to our members, creators and businesses.”

As Netflix and other major streamers and studios approach another negotiation with above-the-line unions, all of whom are angry about AI, Netflix’s letter called the technology “empowering” for creators. GenAI tools can “help them realize their visions and deliver even more impactful titles to members,” he says. “For example, in Merry Gilmore 2the filmmakers used GenAI coupled with ML and Eyeline’s proprietary volumetric capture technologies to de-age the characters during the opening flashback scene. And the producers of Billionaires Bunker used various GenAI tools during pre-production, including for pre-visualization to explore wardrobe and set designs.

Netflix recently published guidelines for the use of AI in production, the letter recalls.