$NFLX (+0,95%) reported strong financial results for the third quarter of 2025, achieving record viewership and advertising sales despite a significant one-time tax expense related to a dispute with Brazilian tax authorities that impacted earnings per share (EPS) and operating margin.
Financial Highlights and Impact of Brazilian Tax Expense
In Q3 2025, Netflix's revenue rose 17% year-over-year to $11.51 billion, meeting analyst expectations. However, adjusted EPS came in at $5.87, below the expected $6.97, primarily due to a $619 million tax-related expense in Brazil, which was not anticipated in forecasts. The net income reported was $2.55 billion, also missing the higher estimates of $3 billion.
The company's operating margin was 28%, underperforming the 31.5% guidance, wholly attributable to the aforementioned Brazilian tax issue. Netflix management clarified the tax is not unique to the company nor exclusive to streaming services and indicated that absent this expense, operating results would have exceeded expectations. They also noted no significant future impact is expected from this tax dispute.
Record Engagement and Viewer Share
Despite the financial headwind, Netflix achieved record television viewer shares in major markets. In the United States, Netflix captured an 8.6% viewer share, and in the United Kingdom, 9.4%, marking the highest levels since its streaming inception. These figures represent increases of 15% and 22%, respectively, from the fourth quarter of 2022.
This surge in viewership was fueled by successful original content such as "Squid Game" Season 2, which saw over 7 billion minutes viewed in September alone, making it a historic Netflix title. Additionally, the animated film "K-Pop Demon Hunters" set a platform record for viewership, further boosting engagement metrics.
Advertising Revenue Milestone
The quarter marked the best-ever performance for Netflix's advertising business. Upfront commitments for advertising in the U.S. doubled, and the ad-supported subscription tier grew to 94 million monthly users as of May 2025. The company is on track to more than double its ad revenue in 2025 from a relatively low base.
Netflix's expansion and enhancement of its internal advertising technology platform have improved inventory control and targeting capabilities, leading to higher profitability in this segment and greater advertiser interest.
Geographic Revenue Breakdown and Monetization Strategy
Revenue growth was broad-based across regions: U.S. & Canada contributed $5.07 billion (+17%), Europe, Middle East & Africa $3.7 billion (+18%), Latin America $1.37 billion (+10%), and Asia-Pacific $1.37 billion (+21%).
Since early 2023, Netflix has pivoted its strategy away from emphasizing subscriber counts, choosing instead to prioritize revenue, margin expansion, and user engagement.
The crackdown on password sharing led to approximately 50 million new paying accounts, many opting for the ad-supported tier, underpinning both revenue and engagement growth.
2025 Outlook and Strategic Investments
For Q4 2025, Netflix forecasts revenue of $11.96 billion, reflecting 16.7% annual growth, and EPS of $5.45. The operating margin is expected to be 23.9% due to timing of content investments and marketing costs. Full-year 2025 revenue guidance stands at $45.1 billion with a 29% operating margin, slightly below prior expectations due to the Brazilian tax issue.
Netflix continues to invest heavily in new areas. Its live event strategy includes broadcasting boxing matches such as "Jake Paul vs Mike Tyson" , which attracted over 108 million global viewers in 2024, and exclusive NFL Christmas Day games through a multi-year deal starting in 2025.
In gaming, Netflix has invested about $1 billion, offering over 120 mobile games including titles like "GTA: San Andreas" and proprietary IP-based games. While currently games contribute less than 0.5% to total user engagement time, Netflix is betting on this category for future growth.
Market Reaction and Long-Term Prospects
Netflix shares declined 5-6% in after-hours trading following the earnings release, reflecting investor disappointment over the EPS miss primarily driven by the Brazilian tax issue. Despite this short-term negative reaction, industry analysts remain optimistic about Netflix's long-term trends, citing strong content leadership, user engagement, and robust ad revenue growth as key drivers.
Netflix has decisively shifted from growth primarily measured by subscriber additions to a balanced focus on monetization, profitability, and diversified content offerings. This strategy includes leveraging artificial intelligence for content discovery and expanding into live programming and gaming to sustain future momentum.
In summary, Q3 2025 demonstrated Netflix's capability to break records in engagement and advertising revenue, setting a solid foundation for continued growth even amid regulatory and geographic challenges. The company's focus on profitability and innovation positions it well for the evolving streaming entertainment landscape.
Sources:
https://quartr.com/companies/netflix-inc_3477