Netflix's Third Quarter Report That Did Not Meet Expectations

Netflix Third Quarter Performance

Netflix (NFLX) experienced a 6% drop in its stock following revenue and profit reports that fell short of expectations. Here are the third quarter results according to Bloomberg consensus estimates:

• Revenue: $11.51 billion (estimate: $11.52 billion, last year: $9.82 billion); Netflix guidance: $11.53 billion
• Earnings per share: $5.87 (estimate: $6.94, last year: $5.40); Netflix guidance: $6.87

The company provided a forecast for fourth quarter revenue that exceeds market expectations, expecting $11.96 billion. This figure is higher than the $11.90 billion predicted by analysts in the Bloomberg survey.

Earnings per share also appear to be set to exceed estimates. The company anticipates earning $5.45, while analyst estimates are at $5.42.

Expectations for 2025

For 2025, Netflix has forecasted revenue of $45.1 billion, which is at the upper end of its previous forecast range. However, an operating margin of 28% was reported, while the forecast was 31.5%. This decline stems from an unexpected expense related to Brazilian tax authorities. The company noted it has the potential to exceed its margin target if this situation is excluded.

In the coming years, Netflix is projecting a 29% operating margin for 2025; this represents a slight decline from the previous expectation of 30%, reflecting the impact of the tax issue.

Content Strength and Advertising Revenues

Netflix reported that “engagement remains healthy” thanks to particularly strong content production in the third quarter. Notably, the Canelo vs. Crawford match reached 41 million global viewers as the company described it as the most-watched men's championship boxing match of the century.

Additionally, the animated film “KPop Demon Hunters” became Netflix's most-watched film of all time, reaching a total of 325 million views. This success highlights the company's ability to create major hits from relatively unknown intellectual properties.

Management emphasized the importance of the $7.99 ad-supported tier to support user growth in the long term. Netflix announced that it has laid a strong foundation for advertising revenue to increase by over 100% by 2025. The company's advertising revenue is expected to reach $1.4 billion in 2024 and $2.9 billion in 2025.

Future Plans and Market Impact

Last month, Netflix announced a new video podcast partnership with Spotify. This collaboration will enable some programs to be released on Netflix in early 2026.

Stocks have risen by 40% since the beginning of the year, but analysts are divided over whether Netflix's growth justifies its price amid some market pressures it has faced in recent months.

As a result, while commentators expect advertising expenses to rise, Netflix's growth potential has come into question against the backdrop of a high valuation and the rise of AI-supported content platforms.