Netflix’s revenue climbed 17.2% to $11.51 billion in the third quarter, driven primarily by subscriber growth, pricing adjustments and increased ad revenue.
The results reflect Netflix’s continued dominance in the streaming business, second only to YouTube, which offers its videos for free. But even it couldn’t avoid getting roped into the M&A chatter around Warner Bros. Discovery, with co-CEO Ted Sarandos offering a subtle indication it was open to being more acquisitive.
But shares fell 5.5% on Tuesday after the company reported lower than expected earnings of $5.87 per share. It also said that its operating margin of 28% was below its guidance of 31.5% due to an $619 million expense related to an “ongoing dispute” with Brazilian tax authorities.
Netflix Chief Financial Officer Spencer Neumann said the dispute involves a 10% tax on certain payments made by Brazilian entities to companies based outside of Brazil. He noted that, while the issue was flagged in previous 10K and 10Q filings dating back to 2023, a new ruling by the Brazilian Supreme Court in August expanding the scope of the payments impacted made it reevaluate the situation and “deem the loss to be probable.”
It’s an unusual and surprising expense, which is likely why took a bite out Netflix’s earnings. Excluding that item, the company said it would have exceeded the operating margin forecast and that it doesn’t expect the dispute to have a material impact on its future results.
Here are the quarter’s results:
Net income: $2.55 billion, compared to $2.36 billion a year ago.
Earnings per share: $5.87 per share, compared to $6.97 per share expected from analysts estimates compiled by Yahoo Finance.
Revenue: $11.51 billion, up 17.2% year over year, in line with the $11.51 billion expected from analysts estimates compiled by Yahoo Finance.
Operating income: $3.25 billion, up 12% year over year, compared to $2.9 billion a year ago.
Netflix saw revenue grow 17% year over year to $5.07 billion in the U.S. and Canada, 18% year over year to $3.7 billion in the Europe, the Middle East and Africa (EMEA) region, 10% year over year to $1.37 billion in Latin America and 21% year over year to $1.37 billion in the Asia Pacific (APAC) region. It also touted its best quarter ever for ad sales, but did not provide specific figures.
The company stopped publicly disclosing subscriber and average revenue per user numbers at the end of 2024 as it shifted focus to engagement, but previously said it would provide updates when it hits major milestones. Netflix executives said that engagement remains “healthy,” with total viewing hours growing faster in the third quarter of 2025 than the first half of the year.
Netflix addresses Spotify, M&A and generative AI
The latest quarterly results comes as Warner Bros. Discovery on Tuesday launched a strategic review of alternatives following “unsolicited interest” from “multiple parties” for all or part of the company. CNBC’s David Faber reported on Tuesday that Netflix and Comcast are among the interested parties in the streaming & studio side of the business, which is set to separate from the linear networks side in April.
Netflix co-CEO Ted Sarandos reiterated that the company has “no interest” in acquiring legacy media networks, but said that the company believes it can be and will be “choosy” with regard to M&A.
“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. Nothing is a must have for us to meet our goals that we have for the business,” he explained. “But we focus on profitable growth and reinvesting in our business, both organically and through selective M&A. And when it comes to M&A opportunities, we look at them, and we look at all of them.”
When asked about how potential media consolidation would impact Netflix, co-CEO Greg Peters said that none of the major media mergers in recent years were a “fundamental shift” in the competitive landscape.
“Watching some of our competitors potentially get bigger via M&A does not change in and of itself, at least our view, on the competitive landscape. We don’t think it changes the substance of the challenge that our competitors face, specifically the range of activities that we and our competitors have to get great at and has never been assembled in a single company before,” Peters said. “We want to get better all those things, our competitors are seeking to get better all those things, of course, as well. But you have to do that by the hard work of developing those capabilities in the trenches day to day. You don’t get there simply by buying another company that is also still developing those same capabilities.
“It’s our responsibility to look at every significant opportunity. We’ve got a clear framework to evaluate those opportunities and we’ll do whatever we think is best to grow the business,” Peters added.
The results also followed a partnership Netflix struck with Spotify to bring some sports, culture, lifestyle and true crime video podcasts from Spotify Studios and The Ringer to its platform starting in early 2026.
“We’re going to build into this category like we do with our other categories based on demand signals that we get from our members,” Peters said when asked about the partnership during the company’s earnings call. “This is really the opportunity to integrate high quality video podcasts that broadens the Netflix offering beyond all the incredible films and series, beyond the live events that we are building, stand up specials and games. We hope that ultimately reinforces our value is the most important service for entertainment needs.”
Sarandos also emphasized that original content is the biggest business driver for Netflix and that it isn’t dependent on third-party content.
“No single supplier represents more than a small minority of our total view hours. And more importantly, we’ve proven time and time again that licensing to Netflix is the best way to build audience, build revenue and create value for your IP,” Sarandos added. “We played a very positive role in the life cycle of other folks IP, and we suspect that dynamic will continue.”
Sarandos also addressed competition from generative AI-powered content creation apps, such as OpenAI’s Sora 2, which he doesn’t expect to have a major impact on Netflix in the near-term.
“AI can give creatives better tools to enhance their overall TV movie experience for our members, but it doesn’t automatically make you a great storyteller if you’re not,” Sarandos said. “We’re confident that AI is going to help us and help our creative partners tell stories better, faster, in new ways. We’re all in on that. But we’re not chasing novelty for novelty sake here, and we’re investing in what we believe delivers value for creators and members alike. So we’re not worried about AI replacing creativity, but we’re very excited about AI creating tools to help creativity.”
Netflix ‘increasingly confident’ in ad business outlook
Looking ahead to the fourth quarter, Netflix expects revenue to grow 16.7% to $11.96 billion, operating income of $2.86 billion, an operating margin of 23.9%, net income of $2.36 billion and earnings of $5.45 per share. As for the full year, the streamer is forecasting 16% year over year revenue growth to $45.1 billion and an operating margin of 29%.
Netflix also said its “increasingly confident” in the outlook for its ads business, which is on track to more than double its revenue in 2025, though still off a “relatively small base.” The company previously said ad commitments secured during its 2025 upfront more than doubled.
It also plans to launch new ad formats powered by generative AI starting in the fourth quarter and expects its new ad partnership with Amazon to help drive better results for advertisers and a more relevant experience for its subscribers.
Additionally, Netflix expects free cash flow for 2025 of approximately $9 billion, plus or minus a few hundred million dollars, up from its previous forecast of $8 billion to $8.5 billion, due to the timing of cash payments and lower content spend.
