ii view: Netflix hurt by exceptional charge
Not past its initial focus on customer subscription numbers and now focused on sales and profits. Buy, sell, or hold?
22nd October 2025 15:40
by Keith Bowman from interactive investor
Netflix offices in Los Angeles, California. Photo: Mario Tama/Getty Images.
Third-quarter results to 30 September
- Revenue up 17% year-over-year to $11.51 billion (£8.6 billion)
- Earnings per share (EPS) up 9% from a year ago to $5.87 per share (£4.40 per share)
Guidance:
- Expects fourth-quarter revenues to grow 17% to $11.96 billion
- Expects fourth-quarter earnings to grow 28% year-over-year to $5.45 per share
- Continues to expect full-year 2025 revenues of $45.1 billion, potentially up 17% year-over-year
ii round-up:
Netflix Inc (NASDAQ:NFLX) detailed profits that missed Wall Street hopes due to a Brazilian tax-related charge, although with sales and the profit margin matching forecasts when excluding the unexpected cost.
Third-quarter revenues, helped by record ad sales, rose 17% to $11.51 billion. Earnings climbed 9% from a year ago to $5.87 per share, hindered by a $619 million tax related payment, and therefore missing forecasts of $6.97 per share. A profit margin of 32.5% when stripping out the tax payment exceeded forecasts of 31.5%.
Shares in the Nasdaq 100 company fell 7% in after-hours post results US trading having come into these latest numbers up by close to two-thirds over the last year. The Nasdaq 100 index is up by almost a quarter over that time. Rival streamer The Walt Disney Co (NYSE:DIS) has gained by close to a fifth.
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Netflix at the end of 2024 moved to focus on sales and profits and away from reporting customer subscription numbers which totalled over 300 million at that time.
The streamer predicts revenues for the current ongoing fourth quarter to grow by 17% from a year ago to $11.96 billion, potentially pushing earnings up 28% year-over-year to $5.45 per share.
Shows for the current quarter include the final season of Stranger Things, a third series of The Diplomat and a fourth series of The Witcher.
Netflix underlined its production success from late 2022 to the current quarter just gone, with viewing shares for two of its biggest markets - the US and UK - climbing 15% and 22% respectively, according to research firm Nielsen.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Netflix shares post the results, highlighting a price target of $1,500 per share.
Fourth-quarter results are likely to be announced mid to late January.
ii view:
Started in August 1997 sending DVDs to customers, Netflix launched its online streaming service in 2007. Today, the Californian headquartered media giant employs around 14,000 people. Geographically, its home US market still accounts for most revenues at 41% during 2024. That was followed by Europe, the Middle East, and Africa (EMEA) at 32%, Latin America 12%, Asia 11%, and Canada the balance of 4%.
For investors, an unexpected and largely backdated tax related charge now dents annual earnings hopes. Developments in AI could see the technology used to cannibalize the streamer’s content. A move by management to exclude customer subscription numbers may be seen by some investors as reducing transparency, while a forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap.
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On the upside, revenues now include both subscription fees and growing advertising sales. Developments in AI could increase customer content discovery and recommendations, offer new tools to content makers and enhance ad targeting. Expected free cashflow of $9 billion over 2025 supports ongoing investment, while non-English language series and films now account for more than one-third of all Netflix viewing.
On balance, and while competitors are not standing still, established strong viewing engagement and the continued global switch from linear TV to streaming will likely continue aiding this modern-day media icon.
Positives:
- Management initiatives such as advertising
- Geographical diversity
Negatives:
- Intense competition from Disney, Apple Inc (NASDAQ:AAPL) and others
- Subject to currency movements given overseas customer base
The average rating of stock market analysts:
Buy
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