Netflix (NFLX) Reports 17% Revenue Growth But Hit by Tax Expense
Key Points
- Revenue: $11.51 B (+17% YoY), in line with forecast ($11.52 B expected).
- EPS: $5.87 (+9% YoY), below consensus of $6.89 due to one-time tax expense.
- Operating Margin: 28.2% (vs. 31.5% guidance) — impacted by $619 M non-recurring charge related to a Brazilian tax dispute.
- Free Cash Flow: $2.66 B, up from $2.19 B YoY.
- Net Income: $2.55 B (+8% YoY).
- Q4 Guidance: Revenue $11.96 B (+16.7% YoY); Operating Margin 23.9%.
Quarter Highlights
- Advertising: Record ad sales quarter; U.S. upfront commitments doubled. Ad revenue on track to more than double in 2025 from 2024.
- Content Performance:
- KPop Demon Hunters became Netflix’s most-watched film ever (325 M views).
- Canelo vs. Crawford drew 41 M viewers — most-viewed men’s championship fight this century.
- Strong U.S./U.K. view share gains: +15% and +22% since Q4 2022.
- Regional Growth:
- UCAN +17%, EMEA +18%, APAC +21%, LATAM +10%.
- AI & Innovation:
- Generative AI powering recommendation engine and localization tools.
- AI now used for ad creative and new format testing.
- Upcoming Slate: Stranger Things Final Season, Knives Out 3, and live NFL Christmas Day games.
CEO Statement and Outlook
Management highlighted continued strong engagement and global viewership gains despite the tax-related margin impact.
Netflix expects to finish 2025 with ~16% revenue growth and an operating margin of 29%, slightly below prior 30% guidance due to the one-time charge.
Executives reaffirmed confidence in long-term profitability and cash generation, raising 2025 free cash flow outlook to ~$9 B (up from $8–8.5 B).
Financial Summary
| Metric | Q3 2025 | Q3 2024 | YoY Change |
|---|---|---|---|
| Revenue | $11.51 B | $9.82 B | +17% |
| Operating Income | $3.25 B | $2.91 B | +12% |
| Operating Margin | 28.2% | 30.0% | ↓ 180 bps |
| Net Income | $2.55 B | $2.36 B | +8% |
| Diluted EPS | $5.87 | $5.40 | +9% |
| Free Cash Flow | $2.66 B | $2.19 B | +21% |
Capital Return
- Repurchased 1.5 M shares for $1.9 B in Q3.
- $10.1 B remains authorized for future buybacks.
- Ended quarter with $9.3 B cash and $14.5 B gross debt.
About Netflix
Netflix is a global streaming entertainment service offering films, series, and games to more than 190 countries. The company continues expanding its advertising, live events, and consumer-products segments.
Key Themes
- Ad Revenue: Netflix said Q3 was its best ad-sales quarter ever, doubling U.S. upfront commitments. They expect ad revenue to double in 2025, though still a small portion of total sales.
- Engagement: Record view-share in U.S. (+15 % since Q4’22) and UK (+22 %). K-Pop Demon Hunters became Netflix’s most-watched film ever.
- Content spend: Lower than expected this year, boosting free cash flow to ≈ $9 B FY guidance.
- Share repurchases: $1.9 B in Q3; $10.1 B authorization remaining.
- Gross debt: $14.5 B; cash ≈ $9.3 B → net debt near $5 B.
Quarter-over-Quarter Context
| Quarter | Revenue ($ B) | EPS ($) | Op. Margin | Notes |
|---|---|---|---|---|
| Q1 2025 | 10.54 | 6.61 | 31.7 % | Post-price hikes, strong growth |
| Q2 2025 | 11.08 | 7.19 | 34.1 % | High margin before tax charge |
| Q3 2025 | 11.51 | 5.87 | 28 % | Brazil charge hit earnings ≈ –$1 EPS |
Valuation Insight
- At $1,160/share (after-hours Oct 21), Netflix’s market cap ≈ $500 B.
- Trailing 12-mo EPS ≈ $19.7 → P/E ≈ 59x, above its 5-yr average (35–45x).
- Free cash flow yield ≈ 1.8 %.
- Revenue growth (+17 %) and margin trend are solid, but valuation assumes sustained high growth and ad execution.
Bottom Line
- Strengths: Accelerating ad tier, record engagement, high free cash flow, disciplined spending.
- Weaknesses: EPS miss from tax charge and FX; margin compression; premium valuation.
- Outlook: Management guides steady growth and 29 % FY margin. If ad business keeps scaling and content spend stays efficient, fundamentals support long-term bullishness.
Quarter-over-Quarter Context
| Quarter | Revenue ($ B) | EPS ($) | Op. Margin | Notes |
|---|---|---|---|---|
| Q1 2025 | 10.54 | 6.61 | 31.7 % | Post-price hikes, strong growth |
| Q2 2025 | 11.08 | 7.19 | 34.1 % | High margin before tax charge |
| Q3 2025 | 11.51 | 5.87 | 28 % | Brazil charge hit earnings ≈ –$1 EPS |
Valuation Insight
- At $1,160/share (after-hours Oct 21), Netflix’s market cap ≈ $500 B.
- Trailing 12-mo EPS ≈ $19.7 → P/E ≈ 59x, above its 5-yr average (35–45x).
- Free cash flow yield ≈ 1.8 %.
- Revenue growth (+17 %) and margin trend are solid, but valuation assumes sustained high growth and ad execution.
Netflix Inc. (NFLX) Technical Analysis
Fibonacci Support and Resistance:
– Support Levels:
– Level 1: $1,191.06
– Level 2: $1,163.31
– Level 3: $1,143.22
- Resistance Levels:
- Level 1: $1,219.03
- Level 2: $1,231.12
- Level 3: $1,248.60
Relative Strength Index (RSI):
– Current RSI is 58.66, indicating a neutral condition, not oversold or overbought.
Williams %R:
– Current value is -6.33, suggesting a potential overbought condition.
Average Directional Index (ADX):
– Value is 15.83, implying weak trend strength currently.
Standard Deviation (Volatility Measure):
– Current standard deviation is 24.17, indicating moderate volatility.
Moving Averages:
– 50-Day SMA: $1,214.54
– 200-Day SMA: $1,111.99
Trend Analysis:
– The stock is trading above both the 50-day and 200-day SMAs, indicating a bullish trend.
Entry Strategy
Long Entry:
– Justification: The stock’s price is above both short-term (50-day) and long-term (200-day) moving averages, indicating a bullish trend. However, weak ADX suggests weak trend strength, which warns caution.
– Recommendation: Enter on pullbacks to the support level around $1,191.06, with confirmation of renewed buying pressure.
Short Entry:
– Justification: Williams %R indicates potential overbought conditions; however, the overall bullish trend in moving averages and RSI does not strongly support a short entry.
– Recommendation: Exercise caution with short positions; consider this if the stock breaks below $1,163.31 with increasing selling momentum.
Bottom Line
- Strengths: Accelerating ad tier, record engagement, high free cash flow, disciplined spending.
- Weaknesses: EPS miss from tax charge and FX; margin compression; premium valuation.
- Outlook: Management guides steady growth and 29 % FY margin. If ad business keeps scaling and content spend stays efficient, fundamentals support long-term bullishness.
Given the pullback (~-6.5 % AH), the stock looks technically extended but fundamentally intact — the decline seems reactionary to the EPS miss rather than business weakness.
Our view: it’s not overvalued on long-term growth potential if ad revenue expands as expected.: it’s not overvalued on long-term growth potential if ad revenue expands as expected.
This analysis is generated with AI assistance and is not investment advice.