Core Viewpoint - Netflix co-CEO Ted Sarandos dismissed merger speculation amid Warner Bros. Discovery's exploration of breakup options, emphasizing the company's lack of interest in acquiring legacy media networks [1][2] Company Strategy - Netflix remains focused on organic growth rather than pursuing mergers and acquisitions, with Sarandos stating that the company has sufficient growth potential without altering its strategy [4] - The company evaluates potential deals strictly, considering whether they would enhance its entertainment portfolio or strategic goals, and if they provide better value than developing capabilities internally [4][5] Market Reaction - Following the earnings call, Netflix's shares fell approximately 6% in after-hours trading due to missing Wall Street estimates for both revenue and profit [3] - Despite the dip, Netflix reaffirmed its full-year revenue outlook, expecting results to fall within the range of $44.8 billion to $45.2 billion [3] Industry Context - The entertainment industry is experiencing waves of consolidation, with notable mergers such as Disney's acquisition of Fox and Amazon's purchase of MGM [5] - Netflix executives believe that these mergers do not fundamentally alter the competitive landscape, maintaining that the challenges faced by competitors remain unchanged [6]

Core Viewpoint - Netflix is reportedly interested in acquiring Warner Bros. Discovery, which has officially put itself on the market, but the company's Co-CEOs indicated that major acquisitions are not a priority for them [2][3]. Financial Performance - Netflix experienced a revenue increase of 17% in Q3, but reported an earnings-per-share miss due to a complex tax dispute in Brazil, which affected operating margins, dropping them to 28% from a previously guided 31.5% [3][12]. - The company attributed the earnings miss to an unexpected tax issue with Brazilian authorities, which involves back payments related to technology usage fees [12][13]. Acquisition Interest - Co-CEO Ted Sarandos stated that Netflix has no interest in owning legacy media networks and emphasized the need for acquisitions to strengthen existing capabilities or accelerate strategy [3][4]. - Analysts express skepticism about the strategic fit of Warner Bros. assets for Netflix, suggesting that most of these assets do not align with Netflix's corporate priorities [8][9]. Market Dynamics - The current consolidation in Hollywood is viewed as not fundamentally changing the competitive landscape, with previous mergers yielding varied outcomes [5][6]. - Analysts noted that acquiring another company may not help Netflix develop the necessary capabilities to compete globally in streaming video [5][10]. Future Growth Strategies - Netflix's growth is expected to come from its ad-supported tier, which has doubled revenues from the previous year, and from investments in live events and sports [14][15]. - The company is cautious about entering into expensive long-term broadcasting deals, unlike traditional media companies [15].

Core Insights - Netflix reported third quarter earnings that missed analyst expectations on both revenue and profit, resulting in an over 8% decline in share price [1] - Revenue for the quarter was $11.51 billion, slightly below Bloomberg consensus estimates of $11.52 billion and the company's own guidance of $11.53 billion, compared to $9.82 billion in the same quarter last year [1] - Earnings per share were $5.87, missing analyst expectations of $6.94 and the company's forecast of $6.87, but still above the $5.40 reported a year ago [2] Revenue and Earnings Guidance - For the current quarter, Netflix forecasts revenue of $11.96 billion, exceeding Wall Street expectations of $11.90 billion, with earnings expected at $5.45 per share, higher than analyst estimates of $5.42 [2] - For full-year 2025, Netflix expects revenue of $45.1 billion, at the upper end of its previous forecast range of $44.8 billion to $45.2 billion [3] Operating Margin - The company reported an operating margin of 28%, below its forecast of 31.5%, due to unexpected expenses related to a dispute with Brazilian tax authorities [3] - Netflix now forecasts a 2025 operating margin of 29%, slightly down from the prior expectation of 30% due to the tax matter [4] Content Performance - Engagement remains healthy, driven by a strong content slate, including the Canelo vs. Crawford fight, which attracted over 41 million global viewers [5] - The animated film "KPop Demon Hunters" became Netflix's most-viewed film of all time with 325 million views, highlighting the platform's ability to create hits from lesser-known intellectual properties [6] Advertising Business Outlook - Netflix is increasingly confident in its advertising business, with ad revenue expected to more than double in 2025 from a small base, following a US upfront that saw commitments more than double year over year [7]

Core Viewpoint - Netflix co-CEO Greg Peters criticized large media mergers, asserting that they do not address the industry's challenges and that developing capabilities requires consistent effort rather than acquisitions [1][2]. Group 1: Industry M&A Landscape - Peters referenced past mergers such as Disney-Fox and Amazon-MGM, noting that these did not fundamentally alter the competitive landscape and resulted in varied outcomes [2]. - Warner Bros. Discovery has expressed interest from multiple parties regarding a deal for its studio and streaming assets, although initial offers were deemed too low [4]. Group 2: Netflix's Strategic Focus - Netflix emphasizes the importance of producing diverse content across genres and languages globally, integrating advanced technologies like AI, and enhancing customer experiences [3]. - Co-CEO Ted Sarandos clarified that Netflix remains uninterested in acquiring legacy media networks, focusing instead on evaluating M&A opportunities based on their potential to strengthen Netflix's entertainment offerings and align with existing strategies [5].

Financial Data and Key Metrics Changes - The company reported revenue in line with expectations for Q3 2025, with operating income impacted by a Brazilian tax matter, which would have exceeded forecasts otherwise [2][10] - Engagement metrics showed record share TV time in Q3 in both the U.S. and the U.K., indicating healthy engagement levels [2][19] Business Line Data and Key Metrics Changes - The advertising segment is on track to more than double ad revenue this year, with the best ad sales quarter ever recorded [2][10] - The company achieved its highest quarterly view share ever in the U.S. at 8.6% and in the U.K. at 9.4% [19] Market Data and Key Metrics Changes - The company is currently capturing only about 7% of the addressable market in terms of consumer spending, indicating significant growth potential [4] - The Brazilian tax issue is a unique cost of doing business, affecting the financials but not expected to have a material impact going forward [10] Company Strategy and Development Direction - The company aims to continue focusing on profitable growth and reinvesting in its core business while exploring selective M&A opportunities [36][37] - The strategy includes expanding original content and enhancing engagement through interactive features and gaming [42][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the business and the opportunities ahead, emphasizing the importance of competition in driving improvement [2][4] - The company is excited about its upcoming content slate for 2026, which includes returning popular series and new films [22][23] Other Important Information - The company is exploring the integration of high-quality video podcasts through a partnership with Spotify, aiming to broaden its entertainment offerings [24][25] - The company is also focused on enhancing its advertising capabilities and improving fill rates as it scales its ad suite [17][15] Q&A Session Summary Question: Health of the business and future opportunities - Management believes the business is healthy and sees significant opportunities ahead, with a focus on key initiatives and engagement metrics [2][4] Question: Nature of the Brazilian tax expense - The tax is a gross tax on outbound payments, not an income tax, and has been recorded as a component of cost of revenues [7][10] Question: Revenue and operating income growth for 2026 - Full year 2026 guidance will be provided in January, but the company aims to sustain healthy revenue growth and expand margins [11] Question: Advertising revenue growth - The company is on track to more than double ad revenue in 2025, with a strong growth trajectory expected [13][14] Question: Engagement metrics - Total view hours grew faster in Q3 2025 than in the first half, with significant cultural impact from key titles [19][20] Question: Live events impact - Live events like the Canelo Crawford fight have shown to attract mass audiences and positively impact acquisition and retention [29][30] Question: Industry consolidation and competitive landscape - Management views industry consolidation as an opportunity but emphasizes the importance of organic growth and selective M&A [36][37] Question: AI and content creation - The company sees AI as a tool to enhance creativity rather than replace it, focusing on leveraging AI for better storytelling [54][58]

Financial Data and Key Metrics Changes - The company reported revenue in line with expectations for Q3 2025, with operating income impacted by a Brazilian tax matter, which would have exceeded forecasts otherwise [2][10] - Engagement metrics showed record share TV time in Q3 in both the U.S. and the U.K., indicating healthy engagement levels [2][19] - The company is on track to more than double ad revenue this year, reflecting strong growth in the advertising segment [2][13] Business Line Data and Key Metrics Changes - The company achieved its best ad sales quarter ever, with significant growth in programmatic advertising, which is expected to contribute increasingly to revenue [2][13][14] - The live offerings and gaming segments are expanding, with notable events like the Canelo Crawford fight achieving record viewership [3][29] Market Data and Key Metrics Changes - In Q3 2025, total view hours grew faster than in the first half of the year, with the U.S. achieving a view share of 8.6% and the U.K. 9.4% [19][20] - The company continues to see a shift from linear viewing to streaming, which is expected to drive long-term growth [21] Company Strategy and Development Direction - The company sees significant growth potential, estimating it currently captures only about 7% of the addressable market in consumer spending [4] - The focus remains on improving core business areas, including content production and technology, to enhance competitive positioning [4][5] - The company is exploring partnerships and content diversification, including a recent deal with Spotify for video podcasts [24][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the business and the opportunities ahead, despite acknowledging the need for continuous improvement [2][4] - The company is optimistic about its growth trajectory in advertising and content engagement, with plans for a strong slate of releases in 2026 [11][21] Other Important Information - The Brazilian tax issue was clarified as a cost of doing business rather than an income tax, impacting the cost of revenues for Q3 [7][10] - The company is committed to maintaining its strategy of exclusive first-run movies on Netflix, with occasional theatrical releases for select films [26] Q&A Session Summary Question: Health of the business and future opportunities - Management believes the business is healthy and sees significant opportunities ahead, with a focus on key initiatives and engagement metrics [2][4] Question: Nature of the Brazilian tax expense - The tax is a gross tax on outbound payments, not specific to Netflix, and has been recorded as a cost of revenues due to a recent court ruling [7][10] Question: Revenue and operating income growth for 2026 - Full year 2026 guidance will be provided in January, but the company aims to sustain healthy revenue growth and expand margins [11] Question: Advertising growth expectations - The company is excited about doubling ad revenue in 2025 and sees room for further growth, particularly in programmatic advertising [13][14] Question: Engagement and content performance - Total view hours grew in Q3, with significant events driving engagement, and management believes in the importance of a steady slate of content [19][21] Question: M&A and industry consolidation - The company remains focused on organic growth but will evaluate M&A opportunities selectively, emphasizing the importance of building capabilities [36][39] Question: Impact of AI on content creation - Management sees AI as a tool to enhance creativity rather than replace it, with ongoing investments in AI technologies to improve productivity and innovation [52][54]

Financial Data and Key Metrics Changes - The company reported revenue in line with expectations for Q3 2025, with operating income impacted by a Brazilian tax matter, which would have exceeded forecasts otherwise [2][10] - Engagement metrics showed record share TV time in Q3 in both the U.S. and the U.K., indicating healthy user engagement [2][17] - The company is on track to more than double ad revenue this year, marking significant growth in its advertising segment [2][12] Business Line Data and Key Metrics Changes - The live offerings and gaming segments are being expanded, with notable events like the Canelo Crawford fight achieving record viewership [3][26] - The K-pop, Demon Hunters film has become a cultural phenomenon, demonstrating the company's ability to create popular content that resonates globally [5][24] - The advertising business is seeing growth, with more than doubling of U.S. upfront commitments and higher rates of growth in programmatic advertising [12][14] Market Data and Key Metrics Changes - The company estimates it currently captures only about 7% of the addressable market in consumer spending and 10% of time spent on TV in its largest market, indicating substantial growth potential [4] - Total view hours grew faster in Q3 2025 compared to the first half of the year, achieving the highest quarterly view share ever in the U.S. and U.K. [17][18] Company Strategy and Development Direction - The company aims to continue focusing on profitable growth and reinvesting in its core business while embracing competition as a driver for improvement [4][32] - There is a strong emphasis on expanding original content and enhancing user engagement through interactive features and gaming [39][50] - The company is cautious about M&A, preferring organic growth and selective acquisitions that align with its strategic goals [32][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the business and the opportunities ahead, despite challenges such as the Brazilian tax issue [2][10] - The company is excited about its upcoming content slate for Q4 and 2026, which includes returning popular series and new films [20][21] - Management believes that the shift from linear viewing to streaming will continue to benefit the company long-term [19] Other Important Information - The Brazilian tax matter is a unique gross tax on outbound payments, which has been flagged as a potential exposure in previous filings [8][10] - The company is exploring the integration of high-quality video podcasts into its offerings through a partnership with Spotify [22] Q&A Session Summary Question: Health of the business and future opportunities - Management believes the business is healthy and sees significant opportunities for growth ahead [2] Question: Nature of the Brazilian tax expense - The tax is a gross tax on outbound payments, not an income tax, and has impacted operating income for Q3 2025 [7][10] Question: Revenue and operating income growth for 2026 - Full year 2026 guidance will be provided in January, but the company aims to sustain healthy revenue growth and expand margins [11] Question: Advertising growth expectations - The company is excited about doubling ad revenue in 2025 and sees room for growth in programmatic advertising [12][14] Question: Engagement metrics and content performance - Total view hours grew in Q3 2025, with significant engagement from events like the Canelo Crawford fight and the K-pop film [17][18] Question: Strategy regarding M&A and industry consolidation - The company remains focused on organic growth and selective M&A opportunities, viewing industry consolidation as neither a threat nor a significant opportunity [32][33] Question: Impact of AI on content creation - Management sees AI as a tool to enhance creativity rather than replace it, focusing on leveraging AI for better storytelling and productivity [47][50]

Financial Data and Key Metrics Changes - The company reported revenue in line with expectations for Q3 2025, with operating income impacted by a Brazilian tax matter, which would have exceeded forecasts otherwise [2][16] - Engagement metrics remain healthy, achieving record share of TV time in both the US and the UK, with the highest quarterly view share ever recorded [3][26] Business Line Data and Key Metrics Changes - The advertising segment is on track to more than double ad revenue this year, with significant growth in programmatic advertising [3][20] - The company achieved its best ad sales quarter ever, indicating strong performance in the advertising business [3] Market Data and Key Metrics Changes - The company is currently capturing only about 7% of the addressable market in terms of consumer spending and 10% of time spent on TV in its largest markets, indicating substantial growth potential [5][6] - The Canelo Crawford fight was the most viewed men's championship fight this century, demonstrating the impact of live events on engagement [39] Company Strategy and Development Direction - The company focuses on continuous improvement in key areas such as technology and content to build a scalable global streaming business [4][10] - The strategy includes expanding original content and enhancing engagement through interactive features and gaming [62][63] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of the business and the opportunities ahead, emphasizing the importance of innovation and competition [2][5] - The company plans to sustain healthy revenue growth, expand margins, and increase free cash flow in the upcoming years [17][18] Other Important Information - The Brazilian tax matter is a unique gross tax on outbound payments, which has been recorded as a component of cost of revenues, affecting Q3 results [12][14] - The company is excited about upcoming content, including new seasons of popular shows and films, which are expected to drive engagement in 2026 [31][33] Q&A Session Summary Question: Can you talk broadly about the health of the business and the opportunity ahead? - Management believes the business is very healthy, with good progress on key initiatives and a lot of work ahead to fully realize opportunities [2] Question: Can you provide more color on the nature of the tax expense? - The Brazilian tax is a gross tax on outbound payments, not an income tax, and has been recorded as a cost of revenues affecting Q3 results [11][12] Question: Do you have any early views on revenue and operating income growth for 2026? - Full year 2026 guidance will be issued in January, but the financial objectives remain unchanged, focusing on healthy revenue growth and margin expansion [17][18] Question: Should we interpret the doubling of upfront commitments in advertising to mean that full year 2026 advertising could also double? - While the company is excited about the growth trajectory, specific 2026 guidance is not provided at this time [19][20] Question: Are fill rates improving in line with expectations as the Netflix ad suite and new demand partnerships scale up? - Fill rates have improved, and the company believes they will continue to improve as go-to-market capabilities develop [25] Question: Are you seeing a pickup in engagement as expected? - Total view hours grew faster in Q3 2025 than in the previous year, with significant engagement from key events and content [26][28] Question: How should we think about the recent deal with Spotify? - The partnership with Spotify aims to provide more entertainment options for members, integrating high-quality video podcasts into the Netflix offering [34] Question: Do you see potential industry consolidation reshaping the competitive landscape? - The company remains focused on organic growth and selective M&A, viewing industry consolidation as neither a threat nor a significant opportunity [50][56] Question: How do you think gaming could change the time members spend with Netflix each day? - Gaming is seen as a significant opportunity for engagement, with plans to expand interactive features and high-quality games [62][63]

Joining us now is Mark Mahaney from Evercore ISI. Mark, are you yet able to tell how much of this really is just about this Brazilian tax dispute. And that sounds like the kind of thing that really is a one-off and doesn't get to the fundamentals of the business.But is there something I'm missing there. >> I don't think you're missing anything. I think that sounds well maybe missing one thing there.This was a one-off. It's what 620 million charge. And so if you adjust for that, they would have handily beate ...

Netflix (Nasdaq: NFLX) reported Q3 earnings after the bell today. ...