Netflix (NFLX) shares slide after Q3 earnings miss, despite solid revenue growth.
Netflix (NFLX) posted mixed third-quarter results, sending shares down more than 5% in after-hours trading. Despite the miss on earnings, the streaming leader continues to show strong growth momentum in advertising and engagement — key signs that its long-term story remains compelling for investors analyzing stocks.
Key Takeaways
- Earnings miss: Adjusted EPS came in at $5.87, below analyst estimates of $6.96.
- Revenue strength: Quarterly sales grew 17.2% year over year to $11.51 billion, Netflix’s fastest growth since mid-2021.
- Future outlook: Management expects Q4 revenue to rise 17%, driven by ad sales and a strong content slate.
Why Did Netflix Stock Drop After Earnings?
Netflix stock fell after reporting weaker-than-expected profit results, mainly due to a one-time Brazilian tax charge totaling roughly $619 million. This unexpected cost lowered operating margins and pushed earnings below expectations.
Excluding the tax issue, Netflix said it would have exceeded its operating income and margin forecasts. Investors, however, reacted to the headline miss, with NFLX dropping about 8% in premarket trading Wednesday to around $1,158 per share.
For the quarter, Netflix generated an operating income of $3.25 billion, with a margin of 28.2%, down from 29.6% a year earlier. The company’s growth story remains intact — earnings are still up from $5.40 per share last year, and revenue continues to rise at a double-digit pace.
How Is Netflix’s Advertising Business Performing?
Advertising is quickly becoming one of Netflix’s best company investments. The company recorded its strongest ad sales quarter ever, with ad revenue more than doubling year over year. Management reaffirmed its target to double ad revenue again in 2025.
Netflix’s ad-supported plans are now live across all major markets, and its Ads Suite has been fully deployed. New ad formats, improved measurement tools, and partnerships with platforms like Amazon (AMZN) DSP are fueling growth.
Co-CEO Gregory Peters highlighted that “upfront commitments and programmatic revenue streams are accelerating,” positioning advertising as a key profit driver going forward.
Is Engagement Still Growing for Netflix?
Engagement is one of the main concerns for beginning stock trading investors who analyze stocks like NFLX. While Netflix no longer discloses subscriber numbers, it reported record viewing share in both the U.S. and U.K., up 15% and 22%, respectively, since late 2022.
Hits like K-Pop Demon Hunters — Netflix’s most popular animated original film ever — and returning series like Wednesday helped boost viewership. The upcoming final season of Stranger Things and live events such as the NFL Christmas games are expected to drive even higher engagement in Q4.
Netflix also announced a new podcasting deal with Spotify, expanding into video podcasts as part of its broader entertainment ecosystem.
What It Means for Investors
Despite short-term volatility, Netflix remains one of the companies that are good to invest in for long-term growth. The EPS miss was driven by a non-recurring tax issue, not a structural business weakness.
The company’s fundamentals remain strong — it’s on track to generate between $11–12 billion in free cash flow next year, up from roughly $9 billion this year. Advertising momentum, new content partnerships, and selective investments in interactive content and gaming continue to support growth.
For investors learning the basics of investing or taking an option trading course, Netflix represents a case study in how one-time expenses can affect short-term sentiment — but not necessarily long-term value.
Conclusion
Netflix’s Q3 earnings may have disappointed on the surface, but the company’s core growth drivers — advertising, content, and engagement — remain solid. While competition from Disney+ (DIS), YouTube, and others continues to rise, Netflix’s innovation pipeline and expanding entertainment ecosystem could sustain its leadership.
For those looking for the best stocks to buy with strong global brands and improving profit engines, NFLX remains one to watch.
FAQs
Why did Netflix miss earnings estimates?
Netflix’s EPS fell short due to a one-time Brazilian tax charge of about $619 million, which temporarily reduced profitability. Without that, the company would have exceeded expectations.
Is Netflix still growing?
Yes. Revenue rose 17% year over year to $11.51 billion, and the company expects similar growth in Q4, supported by ad sales and new content releases.
What is driving Netflix’s advertising success?
Netflix has expanded its ad-supported plans globally and introduced new formats, measurement tools, and programmatic partnerships. Ad revenue more than doubled year over year.
Should investors worry about competition?
While competition from Disney, YouTube, and others is strong, Netflix still leads in streaming engagement and continues to innovate with games, live events, and podcasts.
Is Netflix a good stock for beginners?
For those starting with stocks for beginners, Netflix offers a strong example of a growth company with a proven business model, global reach, and evolving profit streams.
This article is for informational purposes only and not financial advice. Always perform your own due diligence before making investment decisions.
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