Netflix's Profits Fell Short of Expectations

Netflix's Quarterly Results and Market Reaction

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

Netflix executives noted during an earnings call that, without the high costs in Brazil, they exceeded their quarter operating margin forecasts. Chief Financial Officer Spencer Neumann stated, "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."

Share Value and Viewer Numbers

Netflix shares fell by over %6, dropping to around $1,163 following the earnings announcement. In contrast, the company noted that its viewer numbers in Britain and the US reached a three-year high. Netflix gained attention with its most popular film, "K-Pop Demon Hunters."

The company is confident in maintaining momentum in the current quarter. They highlighted notable productions such as the final season of "Stranger Things" and "The Diplomat." Additionally, plans to boost live events like professional American football and boxing alongside the new film "Knives Out Mystery" were mentioned.

Competition and Advertising Revenues

Netflix experienced its best sales quarter to date for the ad-supported membership tier. Greg Peters noted the company's annual advertising revenue doubled, although this figure was assessed against a small subscriber base. Emarketer Senior Analyst Ross Benes stated, "Netflix's advertising sales had a strong quarter. However, there was no given figure indicating the size of the advertising business." This suggests that sustainable revenue growth in quarters will primarily stem from subscription fees.

Future Acquisitions and Growth Strategy

Netflix has been subject to speculation regarding its interest in acquiring the global entertainment company Warner Brothers Discovery. Analyst Benes expressed, "If this potential acquisition aligns best with Netflix, WBD's planned studio spin-off might make it more attractive."

Ted Sarandos stated, "We are focused on organic growth at Netflix and are selective in acquisitions." Peters added, "It is our responsibility to evaluate every significant opportunity." Warner Brothers Discovery announced that they are reviewing their options due to unwanted interest from various parties.