Earnings Pros and Cons

You can watch in the embedded video player below:

It’s now a half hour past earnings and Netflix shares are down 5.4%.

As we noted earlier, last quarter’s big EPS miss was driven by what appears to be a one-time event. 

However, revenues merely matched Wall Street expectations, which is generally not good enough for a stock that’s seen the level of share price appreciation Netflix has across the past year.

The company’s forecast for next quarter was solid and operating margins appear to be holding up well, so we’ll see if share losses moderate before the market opens tomorrow.

The next big event to watch is the company hosting their earnings call – you can watch it on YouTube by following this link. 

The call begins at 4:45 p.m. ET (about 15 minutes from now).

“We’re only in our second decade of original programming. We started without any of our own IP so we’ve had to learn how to build major franchises, like Stranger Things and Squid Game, from scratch. KPop Demon Hunters, which is now our most popular film ever (325M views), is another example of our ability to create large breakout hits and for our films to be part of the cultural conversation and zeitgeist.

HUNTR/X became the first K-pop girl group to reach #1 on Billboard’s Hot 100, the album recently went platinum, and characters from the film are the top 5 most-searched Halloween costumes. We are actively expanding the KPop Demon Hunters universe, bringing fans new experiences and products worldwide.

Earlier today, we announced Mattel and Hasbro have each been named a global co-master toy licensee for KPop Demon Hunters. These unprecedented licensing partnerships will help meet the massive fan demand for toys and games inspired by this smash hit. We continue to release apparel on the Netflix Shop and at leading retailers like Amazon, Zara, Target, Gap, Old Navy, and Hot Topic. And we’re excited about incremental opportunities for KPop Demon Hunters in live experiences, publishing, beauty, lifestyle, and food and beverage.”

It’s worth noting that Netflix opens their shareholder letter saying they would have hit operating margins last quarter if not for a tax dispute with Brazil.

That is to say, last quarter’s EPS miss appears to be more of a one-time event than something related to an ongoing issue with Netflix’s business. 

“We’ve come a long way in building our advertising business in less than three years. In that time, we’ve gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets (and we’ll continue to grow from here), building out our ad sales and operations teams, and enhancing our capabilities for advertisers including launching our own first party ad tech stack (Netflix Ads Suite).

We have a solid foundation and are increasingly confident in the outlook for our ads business. We are now on track to more than double our ads revenue in 2025 (still off a relatively small base) and we 6 Eyeline is Netflix’s VFX, technology and innovation company. 5 successfully concluded our US upfront with commitments more than doubling this year.

With the Netflix Ads Suite fully deployed across all our ads markets for a full quarter, we now have greater opportunities for innovation like enhanced targeting and for integrating additional demand sources. For instance, we recently announced we will integrate Amazon’s DSP globally and AJA’s DSP in Japan into our programmatic offering, with availability beginning in Q4’25. These efforts should help create a better, more relevant experience for our members and help advertisers drive even better results.”

Investors generally rush to look at two numbers when a company reports.

Did they beat last quarter and what’st their revenue and EPS guidance for the next quarter.

On that front, forecasted revenue of $11.96 billion in Q4 slightly tops the Wall Street estimates we’re seeing of $11.9 billion. That’s one slightly positive that may be keeping Netflix shares from falling more.

As of 4:11 p.m. ET, shares are down 6%.

NFLX | Netflix Q3’25 Earnings Highlights:

• Adj. EPS: $5.87 [✅]; Misses Wall St Expectations of $6.95
• Revenue: $11.51B (Est. $11.51B) [✅]; [UP] +17.2% YoY
• Adj. Gross Margin: 28.2% [⚠️]; [DOWN] -50 bps YoY
• Net Income: $2.55B [✅]; [UP] +8% YoY
• Operating Income: $3.25B (Est. $3.25B) [✅]; [UP] +12% YoY
• Free Cash Flow: $2.66B; [UP] +21% YoY
• Effective Tax Rate: 18.1% (vs. 12.6% YoY)

Q4’25 Outlook:

• Revenue: $11.96B (Est. $11.9B) [✅]
  • Expected revenue growth of 17% driven by growth in members, pricing, and ad revenue.
  • Projected operating margin of 23.9%, a two percentage point year-over-year improvement.

Q3 Segment Performance:

• UCAN Revenue: $5.07B (Est. $5.07B) [✅]; [UP] +17% YoY
• EMEA Revenue: $3.70B (Est. $3.70B) [✅]; [UP] +18% YoY
• LATAM Revenue: $1.37B (Est. $1.37B) [✅]; [UP] +10% YoY
• APAC Revenue: $1.37B (Est. $1.37B) [✅]; [UP] +21% YoY

Other Key Q3 Metrics:

• Adj. Operating Income: $3.25B (Est. $3.25B) [✅]; [UP] +12% YoY
• Adj. Operating Expenses: $8.26B (Est. $8.26B) [✅]; [UP] +10% YoY
• R&D Expenses: $853.58M (Est. $853.58M) [✅]; [UP] +16% YoY
• Net Cash Provided by Operating Activities: $2.83B; [UP] +22% YoY
• Shares Outstanding: 434.0M
• Gross Debt: $14.46B
• Cash and Cash Equivalents: $9.29B

CEO Commentary:

• Greg Peters: “We’re finishing the year with good momentum and have an exciting Q4 slate, including the final season of Stranger Things and new seasons of The Diplomat and Nobody Wants This.”

CFO Commentary:

• Spence Neumann: “Our primary financial metrics are revenue for growth and operating margin for profitability. We strive for accuracy in our guidance.”

Other Executives:

• Ted Sarandos, Co-CEO: “Engagement remains healthy, and we hit our highest quarterly view share ever in the US and UK.”
• Spencer Wang, VP of Finance & Capital Markets: “We are now on track to more than double our ads revenue in 2025.”

The initial reaction from Wall Street is not good. That’s a big EPS miss, so this isn’t surprising.

Shares are down 7% as of 4:04 p.m. ET.

It’s an earnings miss – $5.87 versus expectations of $6.95.

Cash flow tops expectations ($2.66 billion vs estimates of $2.39 billion).

Revenue of $11.51 billion is slightly below expectations.

We will continue updating this live blog with analysis. 

Once Netflix reports earnings we’ll be closely analyzing the following:

• Financial performance last quarter. Remember that Wall St expects about $6.95 in earnings.
• Commentary on recent hit shows including K-Pop Demon Hunters and Squid Games.
• Any commentary that might give us an indication how subscriber growth is trending.

We expect Netflix’s earnings to drop almost immediately after the closing bell. So we’re just about 5 minutes away from seeing how investors react to Q3 earnings.

As a reminder, this blog will continue updating the moment earnings hit. All you have to do is leave this page open and updates will begin appearing right after Netflix reports. 

Prediction markets like Polymarket now post earnings odds.

One market that’s open is whether Netflix beats Wall Street estimates of $6.95 in earnings tonight. As of 3:50 p.m. ET, about $30,000 has been bet on earnings contracts for Netflix and contracts imply about an 87% chance that Netflix will beat earnings.

Those odds are in line with Netflix’s historical rate of beating earnings. The company has topped estimates in 14 out of its prior 16 earnings releases.

Netflix (Nasdaq: NFLX) earnings are expected right after the bell this afternoon. Shares of Netflix are up about .24% in late trading.

As we noted earlier, Netflix has had strong gains in the 14-days after recent earnings reports. In each of the last four quarters, shares returned between 6.8% and 19% in the following 14 days.

Another interesting note is that Q3 earnings have generally led to the biggest movements in Netflix shares the day following earnings. In 2023, shares jumped 16.1% the day after Q3 earnings.

In 2022, Netflix shares soared 13.1% the day after earnings.

We’ll see if Netflix can keep the streak alive when they report in 15 minutes.

After Netflix’s Q2 earnings release in July, shares initially dipped about 1% in after-hours trading despite strong top-line growth and a guidance raise. The move reflected investor profit-taking after the stock’s sharp pre-earnings rally and a cautious tone on back-half content spending. Still, the stock rebounded quickly in the following sessions as analysts highlighted resilient subscriber trends and margin expansion