Netflix's Profits Fell Below Expectations

Netflix's Quarterly Results and Market Reaction

Netflix shares experienced a sharp decline on Tuesday after the company reported a quarterly profit that fell below market expectations. The company announced a revenue of $11.5 billion with a profit of $2.5 billion for the ended quarter. However, a cost of $619 million stemming from an ongoing dispute with Brazilian tax authorities impacted these results.

Netflix executives stated during an earnings call that they exceeded their operating margin forecasts for the quarter without the high costs in Brazil. CFO Spencer Neumann said, "This is not an income tax; it’s a cost of doing business in Brazil." He also added, "This situation is not unique to streaming services; we expect other companies to be affected as well."

Stock Value and Viewer Numbers

Netflix shares fell over 6% to around $1,163 after the earnings figures were announced. However, the company noted that its viewer numbers in the UK and US reached their highest levels in three years. Netflix gained attention with its most popular film, "K-Pop Demon Hunters."

The company is confident it will maintain momentum in the current quarter, highlighting notable productions such as the final season of "Stranger Things" and "The Diplomat." Additionally, it plans to enhance live events such as professional American football and boxing, alongside a new film titled "Knives Out Mystery."

Competition and Advertising Revenues

Netflix experienced its best sales quarter yet for the ad-supported membership tier. Greg Peters stated that the company’s annual advertising revenue has doubled, but noted that this figure should be considered against a small subscriber base. Emarketer senior analyst Ross Benes said, "Netflix's advertising sales had the best quarter ever. However, no figure was provided for how large the advertising business is." This gives the impression that sustainable revenue growth in the quarters is mainly expected to come from subscription fees.

Future Acquisitions and Growth Strategy

Netflix has been subject to rumors regarding a desire to acquire the global entertainment company Warner Brothers Discovery. Analyst Benes expressed, "If this potential acquisition best aligns with Netflix, the planned split of WBD could make the studio more attractive."

Ted Sarandos stated, "At Netflix, we are focusing on organic growth and being selective with acquisitions." Peters mentioned, "It is our responsibility to assess every significant opportunity." Warner Brothers Discovery announced that it is reviewing its options due to unsolicited interest from various parties.