Netflix stock, which had climbed 39 percent year-to-date before the earnings announcement, dropped 6.3 percent to $1,163.80 during after-market hours on Tuesday. The decline followed Netflix's failure to meet Wall Street's third-quarter profit expectations due to an unforeseen cost related to a conflict with Brazilian tax officials, though the company provided guidance slightly above analyst predictions for the remainder of the year. 

The results disappointed investors who have grown accustomed to rapid expansion from the streaming entertainment leader.

Revenues matched expectations at $11.5 billion. Netflix is pursuing expansion in emerging sectors like advertising and gaming after securing over 300 million subscribers globally. The company confronts rivalry from YouTube, Amazon's Prime Video, Disney+ and other competitors. The entertainment industry is experiencing significant transformations, including the possible divestiture of major player Warner Bros Discovery and the emergence of generative artificial intelligence capable of creating short-format video content.

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Netflix achieved a 28 percent operating margin in the third quarter. Excluding the Brazilian tax cost of approximately $619 million, the margin would have surpassed the company's 31.5 percent target, the firm noted, stating it anticipated no significant future impact from this issue. PP Foresight analyst Paolo Pescatore suggested the tax matter negatively affected Netflix's stock performance.

Netflix predicted fourth-quarter revenues of $11.96 billion for the upcoming quarter, versus Wall Street estimates of $11.90 billion. The company anticipated diluted earnings per share of $5.45, one cent higher than analyst expectations.

Netflix announced its strongest advertising sales performance on record for the third quarter but withheld specific figures.

 

"This gives the impression that the sustained revenue growth achieved this quarter, and forecasted for next quarter, will predominantly continue to come from subscription fees," eMarketer analyst Ross Benes says.

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Netflix plans to debut the concluding season of "Stranger Things," one of its most popular series, across November and December, while also broadcasting two live NFL matches during Christmas.

"We're finishing the year with good momentum and have an exciting Q4 slate," Netflix said in its quarterly letter to shareholders.

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Netflix discontinued sharing subscriber data earlier this year and encouraged investors to concentrate on earnings and revenue instead. The company has ventured into gaming and advertising sectors, though these areas have generated minimal revenue contributions thus far, as noted by industry analysts and investors.