Analysts Eye 30% Upside in Netflix After Q3 Earnings Crash

Core Insights - Netflix's stock has experienced a significant decline, dropping 10% on October 22 following disappointing Q3 2025 earnings, which revealed a revenue of over $11.5 billion and a growth rate of 17.2%, but a miss in adjusted EPS by $1.01 [2][4] - Analysts are forecasting a substantial upside potential of around 30% for Netflix shares despite the earnings miss, with a consensus price target of approximately $1,340 [7][9] Financial Performance - Q3 2025 revenue was reported at just over $11.5 billion, reflecting a growth rate of 17.2%, aligning with market expectations [2] - Adjusted EPS came in at $5.87, missing estimates by $1.01, with Wall Street expecting a 27% increase but only achieving an 8.7% rise [2][4] Tax Impact - A significant factor in the EPS miss was a $619 million tax expense from Brazil, stemming from a Supreme Court ruling that expanded taxable transactions for Netflix [3][4] - Without this tax expense, adjusted EPS would have likely exceeded estimates, and operating margin would have been around 33% instead of 28% [4] International Revenue - In Q3, 56% of Netflix's revenue was generated from outside the United States and Canada, with notable growth in Latin America and Asia Pacific regions [5] - The company does not anticipate similar tax issues in other major countries where it operates [6] Analyst Sentiment - The average target price among analysts is just under $1,460, indicating a potential rise of over 30%, which is atypical for Netflix [9] - Only a small number of analysts adjusted their targets post-earnings, with an average decline of just 2.2%, significantly less than the stock's 10% drop [8] Valuation Metrics - Netflix's forward P/E ratio is approximately 35.5x, down 27% from a three-year peak of 50x, yet still above its average of 34.5x [10][11] - The recent stock pullback may present a buying opportunity, with growth areas identified in advertising revenue, live sports, and international expansion [11] Market Trends - Streaming services are increasingly capturing market share from linear TV, which still accounts for about 43% of U.S. watch time, providing a favorable outlook for Netflix [12]