Netflix missed the earnings target set by stock market analysts during the video streamer’s latest quarter, a letdown that the company blamed on a tax dispute in Brazil.
The results announced on Tuesday broke Netflix’s six-quarter streak of posting a profit that eclipsed analysts’ projections, despite growth in its ads business. The company did post a profit, though less than expected.
The Los Gatos, California, company cited an unexpected $619m expense tied to the Brazilian tax dispute for the third-quarter earnings shortfall while hailing its lineup of distinctive TV series and films for keeping its audience engaged and delivering a mix of subscriber fees and increased ad sales that helped it deliver revenue that matched analyst forecasts.
Netflix’s earnings came after Warner Bros Discovery announced it may sell all or part of its holdings on Tuesday, which include HBO, DC Studios and CNN. Analysts speculated that Netflix may join the bidders looking to grab a piece of the storied production house.
But Ted Sarandos, Netflix’s co-CEO, said in a call with investors on Tuesday afternoon that the company “will be choosy” when it comes to acquisitions and that “we’ve been very clear in the past that we have no interest in owning legacy media networks, so there is no change there”. He did not mention Warner Bros specifically.
“It’s true that historically, we’ve been more builders than buyers, and we think we have plenty of runway for growth without fundamentally changing that playbook,” Sarandos said.
Investors, though, were not placated by the explanation as Netflix’s shares still fell by about 5% in extended trading after the numbers came out.
Netflix earned $2.5bn, or $5.87 per share, in its July-September quarter, an 8% increase from the same time last year. Revenue climbed 17% from last year to $11.5bn. Analysts surveyed by FactSet Research had predicted the company to earn $6.96 per share on revenue of $11.5bn.
Delivering solid financial growth has become more important than ever for Netflix as management has steered investors from fixating on how many subscribers its service gains from one quarter to the next. As part of that process, Netflix stopped disclosing its subscribers at the end of last year.
The shift has paid off so far, with Netflix’s stock price rising about 40% so far this year, although the downturn in extended trading signaled some of those gains may evaporate.
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Although Netflix no longer reveals the specific number, this year’s revenue growth signals that its worldwide subscriber count has increased from the roughly 302 million it had at the end of last year – by far the most among video streamers, even as rivals with deeper pockets such as Amazon and Apple expand their programming selections.
Netflix has maintained its lead by adding more live sports and video games to supplement its wide array of scripted programming – a diversification effort that will expand into video podcasts from Spotify next year.
