Netflix shares fell after it posted a third-quarter earnings miss. The streaming giant has blamed a $600 million tax dispute with Brazil for the shortfall.

Wall Street

Netflix's latest earnings report did not meet Wall Street's expectations, resulting in a notable drop in its stock price. While some analysts noted that a Brazilian tax dispute affected margins, there are broader concerns about the company's future growth and profitability.

Discussion among analysts highlighted issues such as deteriorating margins, the potential need for growth through acquisitions, and the challenges of expanding in international markets. There is also uncertainty regarding future tax liabilities in other countries. Despite some positive momentum in advertising revenue, questions remain about Netflix's ability to sustain growth as it matures.

Netflix misses Wall Street’s earnings estimates

If it was really that Brazilian tax dispute, which is not going to impact future results, Scott, you would think the markets would look through that, and yet the stock is stubbornly down 5%. First of all, I thought the stock would rally after earnings. That didn't happen. But you're right. If it was just that, the market would look through it. As a matter of fact, I'm reading, if you back out the Brazilian tax, I've been to Brazil a couple times, by the way. Really? Yes. Did you have any taxes? I did not, but I don't think I'm allowed back in the country. With all that said, yeah, if they would look past and said, okay, you know what? We actually beat earnings, beat revenue, it's okay, I think this might be the problem. If you start to look at the margins, you're starting to see deterioration margins, even in the guide. If the United States is saturated, the international market, the margins are not going to be as robust. And then there's rumors out there of them potentially buying Warner Brothers Discovery, which leads to the question, at least for me, maybe this growth story is slowing out. Now they need to start to grow by acquisition. I don't know if that's true, but I think that's what the market is sniffing out. 11.50, though, is a recent low. A couple times, it's a huge level. So there's a lot to like here. The valuation is the problem, right, going in. So I am long. I think that what you talked about with ad sales with Julia, I think is really central. So if they're in the walk stage, to me, that's good. They have more to go. They did talk about linear in that chart that you cited. There's linear and linear, they say, is sort of theirs for the taking. It's others for the taking, you know, taking as well. But the momentum here, I think, is tremendous. The guide, actually, the margin depression in the guide, I think, has some residual tax in it. And I don't think of them as particularly great at guiding. And so I think this is the kind of thing you really need to listen to the call, and things could change. So a lot to like here, except it is not cheap by any stretch. But I do think they're in the pole position for sure, staying long. Do you remember when we used to talk about infringement on AI or copyright, when that was going to be a big deal, and then we never talked about it? They seem to be dancing around it, thinking it's not going to be a big deal again. What happens if it's a huge deal? What happens if it's a big headwind for them? I mean, just think about what that could mean for Netflix. Well, when I hear them talk about AI, I think of some of it as AI will help them generate content easier, cheaper, faster, all of that. Machine learning and AI, I hear that as that's going to help us engage our viewers and show them exactly what they want to see to increase their engagement, and therefore all the other things that go with it. I'm not sure to the point that you're making about copyright. Yeah, I don't think people have paid enough attention to that. I love the advertising numbers. I love that they doubled them. I don't know. It's coming from a lower base. That's number one. If you really look at momentum, they don't give out their sub numbers anymore because it's a mature company. If it's a mature company, then they're out of control steam on growth side. I would rather be a seller. I think you could break 1,000. I think you get down to that 850 level in Netflix, but let me just preface this. I thought they were running out of steam originally before they broke out above the 850 level. I think that this is just really long in the tooth. I'd rather be a seller than a buyer here. I want to hone in on this tax issue. Yes, I think they deserve credit for their ad tier and what they've been able to do there. Steve, your point about sub growth, I think that does point to what the overall growth picture is and where they are in terms of being a mature company. But 300 basis points of margin on the Brazilian tax issue, fine. Even if I am going to put that aside, where is the incremental growth to your point going to come from? It's likely going to come from international, which means one, your content spin is likely higher and it means your content focus is likely higher, meaning that it's probably less applicable from region to region, which means whether it's AI or whether it's your traditional content generation, you're going to have to find and tailor that content to each individual region. And who's to say that there won't be continued tax issues in any of those other domiciles? I think that's generally what's coming up and what the concern is. I can get with you in terms of saying, OK, perhaps this Brazilian tax issue is a one-off, what if there's going to be a Canadian tax issue and an Indian tax issue? It could be a U.S. tax issue. Exactly.

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Breakdown