Netflix missed the earnings target set by stock market analysts during the video streamer’s latest quarter, a letdown that the company blamed on a tax dispute in Brazil.
The results announced Tuesday broke Netflix’s six-quarter streak of posting a profit that eclipsed analysts’ projections.
The Los Gatos, Calif., cited an unexpected $619 million expense tied to the Brazilian tax dispute for the earnings shortfall while hailing its lineup of distinctive TV series and films for keeping its audience engaged and delivering a mix of subscriber fees and increased ad sales that helped it deliver revenue that matched analyst forecasts.
Investors, though, weren’t placated by the explanation as Netflix’s shares still fell by about 6% in extended trading after the numbers came out.
Analysts varied in their interpretation of the third-quarter report.
Investing.com analyst Thomas Monteiro worries Netflix is using the Brazilian tax hit as a way to mask signs of a slowdown in subscriber growth and advertising amid economy uncertainty. “The truth is that the company failed to deliver the kind of growth we’ve grown used to over the past couple of years,” he said.
But Zacks analyst Jeremy Mullin said he sees little reason for concern, asserting Netflix’s “underlying story remains solid.”
Netflix earned $2.5 billion, or $5.87 per share, in its July-September quarter, an 8% increase from the same time last year. Revenue climbed 17% from last year to $11.5 billion. Analysts surveyed by FactSet Research had predicted the Los Gatos, California, company to earn $6.96 per share on revenue of $11.5 billion.
Delivering solid financial growth has become more important than ever for Netflix as management has steered investors from fixating on how many subscribers its service gains from one quarter to the next. As part of that process, Netflix stopped disclosing its subscribers at the end of last year.
The shift has paid off so far, with Netflix’s stock price rising about 40% so far this year, although the downturn in extended trading signaled some of those gains are about to evaporate.
Although Netflix no longer reveals the specific, this year’s revenue growth signals that its worldwide subscriber count has increased from the roughly 302 million it had at the end of last year – by far the most among video streamers, even as rivals with deeper pockets such as Amazon and Apple expand their programming selections.
In the company’s quarterly conference call, Netflix co-CEO Ted Sarandos said the streaming service’s total worldwide audience — including multiple people living in the same subscriber household — is approaching 1 billion.
“We have a better understanding of the streaming business than any of our competitors,” Greg Peters, Netflix’s other co-CEO, boasted during the call.
Netflix has maintained its lead by adding more live sports and video games to supplement its wide array of scripted programming – a diversification effort that will expand into video podcasts from Spotify next year.
