Should Investors Buy the Netflix Dip?

Core Viewpoint - Netflix's stock experienced a decline following its Q3 earnings report, primarily due to an unexpected Brazilian tax charge that impacted earnings per share (EPS) significantly, despite revenue meeting analyst expectations [2][9]. Financial Performance - Netflix's overall revenue grew by 17% year over year to $11.51 billion, aligning with analyst consensus [9]. - EPS rose by 9% to $5.87, falling short of the $6.97 consensus due to the Brazilian tax expense [9]. - Free cash flow for the quarter was $2.7 billion, with a full-year target of $8 billion to $8.5 billion [10]. Regional Growth - Revenue growth was robust across various regions: - Asia-Pacific: 21% increase to $1.4 billion [8]. - EMEA: 18% increase to $3.7 billion [8]. - Latin America: 10% increase to $1.4 billion, with a 20% rise in constant currencies [8]. - U.S. and Canada: 17% increase to $5.1 billion [8]. Content and Strategy - Netflix introduced its most popular original film, KPop Demon Hunters, and plans to expand its brand through licensing [5]. - A strong content slate for Q4 includes the final season of Stranger Things and live events, which are expected to enhance its advertising revenue [6][7]. Advertising and Future Outlook - The company is on track to double its ad revenue this year and has achieved sufficient scale in its ad-tiered plans across 12 markets [7]. - Netflix forecasts Q4 revenue growth of 17% with an operating margin of 23.9%, while full-year revenue is expected to reach $45.1 billion [11]. Valuation and Investment Consideration - Despite the recent stock pullback, Netflix maintains a premium valuation with a forward P/E ratio of 34.5 times analyst estimates for 2026 [12]. - The Brazilian tax charge is viewed as a one-time issue that does not alter Netflix's growth trajectory, with expectations for continued strong growth through price increases, new subscribers, and ad revenue [14].