Netflix (NFLX Quick QuoteNFLX - Free Report) reported third-quarter 2025 earnings of $5.87 per share, which missed the Zacks Consensus Estimate by 14.8%. The shortfall was primarily attributed to a one-time $619 million expense related to an ongoing dispute with Brazilian tax authorities. The figure increased 8.7% from the year-ago quarter's $5.40 per share.

Netflix shares fell approximately 5-7% in after-hours trading following the earnings release, primarily due to the significant earnings per share miss. Despite the after-hours decline, Netflix has gained more than 48.6% over the past year, reflecting the company's strong operational performance, successful content strategy, and expanding advertising business.

Revenues increased 17.2% year over year (17% on a foreign exchange neutral basis), driven primarily by membership growth, higher subscription pricing, and increased advertising revenues. The figure missed the consensus mark by 0.12%.

The company emphasized that, absent the Brazilian tax expense, it would have exceeded its third-quarter operating margin forecast. Netflix stated that it does not expect this matter to have a material impact on future results. The Brazilian tax involves a 10% levy on certain payments made by Brazilian entities to operations outside the country.

Netflix moved away from reporting specific subscriber count, starting with the first quarter of 2025, preferring instead to focus on financial metrics and user engagement. While tech giants like Apple (AAPL Quick QuoteAAPL - Free Report) and Amazon (AMZN Quick QuoteAMZN - Free Report) do not reveal subscriber figures for their respective streaming services, other media companies do. Disney (DIS Quick QuoteDIS - Free Report) separately breaks out Disney+, Hulu and ESPN+ figures.

Record Engagement Fuels Growth Despite Operating Margin Miss

Despite the earnings miss, Netflix delivered a strong operational performance in the third quarter. The company achieved its highest quarterly viewing share ever in both the United States and the United Kingdom, with total viewing hours growing faster in the third quarter than in the first half of 2025.

All regions experienced healthy year-over-year revenue growth. UCAN (United States and Canada) revenue increased 17% year over year to approximately $5.07 billion, EMEA (Europe, Middle East and Africa) grew 18% to $3.7 billion, Latin America rose 10% to $1.37 billion, and Asia-Pacific surged 21% to $1.37 billion.

Operating income totaled $3.25 billion, up 12% year over year, but operating margin came in at 28%, significantly below the company's guidance of 31.5% due to the Brazilian tax dispute. Without this one-time expense, Netflix indicated that it would have exceeded its operating margin forecast.

Marketing expenses increased 22.3% year over year to $786.3 million. As a percentage of revenues, marketing expenses expanded 30 basis points (bps) on a year-over-year basis to 6.8%. Technology and development expenses increased 16.1% year over year to $853.6 million. As a percentage of revenues, technology and development expenses contracted 10 basis points (bps) on a year-over-year basis to 7.4%. General and administration expenses increased 9.7% year over year to $457.9 million. As a percentage of revenues, general and administration expenses contracted 30 bps on a year-over-year basis to 4%.

KPop Demon Hunters Becomes Cultural Phenomenon

The third quarter was dominated by the unprecedented success of the animated musical film KPop Demon Hunters, which has become Netflix's most-watched film of all time with more than 325 million views. The film, which premiered on June 20, 2025, has remained on Netflix's Global Top 10 list for 15 consecutive weeks through the third quarter, an unprecedented run for any title on the platform.

The film's impact extended beyond streaming, with a limited theatrical sing-along event in late August generating $17-$18 million in a single weekend across the United States, Canada, Australia, New Zealand, and the United Kingdom. The sing-along version was subsequently released on the platform on Aug. 25, further boosting viewership.

In an unprecedented cultural crossover, HUNTR/X, the fictional K-pop girl group at the center of KPop Demon Hunters, saw their single "Golden" reach No. 1 on the Billboard Hot 100 chart, marking a significant milestone. The film's success prompted Netflix to announce dual product partnerships with leading toy companies Hasbro and Mattel, with dolls, plush, roleplay items, and themed games slated for retail release in spring 2026.

Strong Second-Half Content Slate Drives Viewership

Netflix delivered a robust content slate in the third quarter, led by the highly anticipated return of Wednesday Season 2, which premiered on Aug. 6 with 13.4 million views in its first week. Part 2 of the season was released on Sept. 3. The series has accumulated 107 million views to date, placing it at No. 7 on Netflix's all-time list for English-language TV shows, though it still trails the first season's record-breaking 252.1 million views.

Other successful third-quarter releases included the cooking competition series Bon Appétit, the South Korean drama Your Majesty, and Happy Gilmore 2 starring Adam Sandler, which generated 14.7 million views and delighted audiences with the return of the beloved comedy character.

International content continued to perform strongly, with the British political thriller Hostage starring Julie Delpy and Corey Mylchreest generating 10.8 million views. The romantic drama My Oxford Year, also starring Mylchreest alongside Sofia Carson, attracted 5.9 million views.

Live Programming Achieves Major Milestone

This Zacks Rank #3 (Hold) company scored a significant success in live programming with the broadcast of the Canelo vs. Crawford boxing match on Sept. 13, which topped the weekly TV list with 17.7 million views. The fight scored an estimated average minute audience of 36.6 million global viewers, making it the most-viewed men's championship boxing match of the 21st century. The event marked another win for Netflix's expansion into live sports programming. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Advertising Business Surges to Record Heights

Netflix recorded its best advertising sales quarter ever in the third quarter, with the company on track to more than double ad revenues in 2025, albeit from a relatively small base. The company doubled its upfront commitments in the United States during the quarter.

Co-CEO Greg Peters highlighted the company's progress in advertising technology, noting that in the fourth quarter, Netflix is using AI to test new ad formats "to generate the most relevant ad creative and placement for members, and for faster development of media plans." The company stated that these advancements will enable it to test, iterate, and innovate on dozens of ad formats by 2026.

Netflix also announced a partnership with Spotify to bring a select number of podcasts from Spotify Studios and The Ringer to Netflix's platform, further expanding its content offerings.

Netflix Declares All In on AI Integration

Netflix declared itself "all in" on leveraging generative AI across its streaming platform during the third-quarter earnings discussion. The company emphasized that machine learning and AI have been powering title recommendations, production, and promotion technology for years, with generative AI presenting a significant opportunity across recommendations, advertising, and content creation. Earlier in 2025, Netflix used generative AI for the first time in final footage in the Argentine series The Eternaut, completing a building collapse sequence 10 times faster than traditional visual effects methods would have allowed.

Netflix provided concrete examples of AI implementation in recent productions: Happy Gilmore 2 used AI to de-age characters, while the upcoming series Billionaires' Bunker utilized AI in pre-production to design wardrobes and sets.

The company's embrace of AI extends beyond content creation. As previously noted, Netflix is using AI in its advertising business to test new ad formats, generate relevant ad creative and placement for members, and accelerate the development of media plans. The company has also been expanding its use of AI for personalization and search functionality, with multiple job listings indicating a focus on leveraging large language models for content discovery and recommendations.

Balance Sheet & Cash Flow

Netflix had cash and cash equivalents as of Sept. 30, 2025, compared with $8.17 billion as of June 30, 2025.

Total debt was $14.46 billion as of Sept. 30, 2025, slightly below $14.5 billion as of the end of the previous quarter. 

Streaming content obligations were $20.94 billion as of Sept. 30, 2025, compared with $20.96 billion as of June 30, 2025.

Netflix reported non-GAAP free cash flow of $2.66 billion compared with $2.26 billion in the previous quarter. This reflects improved operational efficiency and strong cash generation capabilities.

Net cash generated from operating activities in the third quarter was $2.82 billion compared with $2.32 billion in the prior-year period. 

During the quarter, Netflix continued its capital allocation strategy, repurchasing shares under its existing $12 billion share repurchase authorization. The company established a commercial paper program in May 2025, providing enhanced flexibility with the ability to issue short-term, unsecured notes up to $3 billion.

Strong Q4 and Full-Year 2025 Outlook

For the fourth quarter of 2025, Netflix expects revenues of $11.96 billion, indicating growth of 16.7% year over year (16% on a foreign exchange neutral basis). Revenues are expected to be driven by continued growth in members, pricing adjustments, and advertising revenues.

The company projects fourth-quarter earnings per share of $5.45. Operating margin guidance for the fourth quarter is 23.9%, representing a two percentage point year-over-year improvement.

For full-year 2025, Netflix now expects revenues of $45.1 billion, representing 16% growth year over year (17% on a foreign exchange neutral basis). This is in line with the company's previous guidance range of $44.8-$45.2 billion. The company has adjusted its full-year operating margin forecast to 29% from the prior 30% projection, reflecting the impact of the Brazilian tax matter.

Netflix has increased its full-year 2025 free cash flow forecast to approximately $9 billion (plus or minus a few hundred million dollars), up from the prior forecast of $8.0-$8.5 billion. The improved forecast reflects the timing of cash payments and lower content spend.

Q4 Content Slate Features Major Franchises

Netflix's fourth-quarter 2025 slate features the highly anticipated fifth and final season of Stranger Things, along with new seasons of The Diplomat and Nobody Wants This. The platform will also release major film titles, including Guillermo del Toro's Frankenstein and Rian Johnson's Wake Up Dead Man: A Knives Out Mystery.

The unscripted lineup includes season 9 of Love is Blind, Building the Band, America's Team: The Gambler and His Cowboys, and a documentary about Victoria Beckham.

Netflix continues to expand its live programming strategy with the highly anticipated NFL Christmas Day doubleheader, featuring divisional matchups between the Dallas Cowboys vs. Washington Commanders and Detroit Lions vs. Minnesota Vikings. This represents a significant expansion of Netflix's live sports offerings as the company seeks to drive engagement during the holiday season.