Netflix Q3 Earnings Miss Due Brazil Tax Dispute Hits Stock

Netflix's third-quarter earnings in 2025 fell short of expectations primarily due to a $619 million tax expense linked to a dispute with Brazilian tax authorities over non-income tax assessments related to payments made by Netflix Brazil to its U.S. parent company. This tax, known as the Contribution for Intervention in the Economic Domain (CIDE), was upheld by Brazil's Supreme Court in a ruling that affected Netflix's operating margin, reducing it by more than five percentage points to 28%, below the forecasted 31.5%. Despite this setback, Netflix reported a 17% year-over-year revenue growth to $11.51 billion, with strong subscriber engagement evidenced by record viewing shares in the U.S. and UK and successful content including "KPop Demon Hunters" and the final season of "Stranger Things." The company’s ad-supported tier also performed well, doubling ad revenue and contributing positively to overall income. Netflix’s executives emphasized that this tax issue is unique to Brazil and is not expected to materially impact future results, with the company maintaining a positive revenue outlook for the full year. Investor concerns remain about competition from free streaming services and AI-generated content, but Netflix's free cash flow exceeded expectations, prompting an upward revision of its annual forecast.