To The Moon

$Netflix(NFLX)$

Netflix (NASDAQ: NFLX) shares tumbled over 6% in after-hours trading following a disappointing third-quarter earnings report that fell well short of Wall Street expectations. Despite solid subscriber growth, a one-time tax hit in Brazil, higher content amortization expenses, and trimmed full-year guidance weighed heavily on investor sentiment. Now, the key question for investors: is this post-earnings plunge an opportunity to buy the dip — or the start of a bigger unwind?

Q3 Earnings: Profit Misses, Tax Hit from Brazil

Netflix reported third-quarter revenue of $9.36 billion, up 12% year-over-year, slightly ahead of consensus estimates. However, net income came in sharply lower than expected at $1.14 billion, translating to earnings per share of $2.48, versus Wall Street’s expectation of around $3.45.

The primary culprit? A non-recurring tax adjustment in Brazil, which management said shaved roughly $900 million off operating profit. Excluding the one-off item, operating margin would have been roughly 24%, consistent with guidance. But even so, the hit rattled investors already concerned about Netflix’s profitability trajectory after two years of heavy investment in ad-tier expansion, live sports, and content development.

Guidance Cut: Cautious Outlook for FY2025

Perhaps more damaging than the tax item was Netflix’s full-year guidance revision. The company now expects FY2025 revenue growth of 11–12%, down from the prior range of 13–15%. Management also guided operating margin to 22–23%, slightly lower than the 24% range investors had penciled in earlier this year.

The downgrade suggests Netflix is facing foreign exchange headwinds, slower ad-tier monetization, and rising competition from both legacy studios and new streaming entrants. CEO Ted Sarandos noted that “global ad spend recovery has been uneven” and that ad-tier ARPU (average revenue per user) remains well below the standard tier, though engagement is improving.

Subscriber Growth Solid but Priced In

Despite the earnings miss, Netflix’s subscriber growth remains a bright spot. The company added 6.9 million new subscribers, bringing its global total to 288 million, surpassing expectations of about 5 million additions. This growth was fueled by its password-sharing crackdown and strong engagement in Asia-Pacific and Latin America.

However, investors may be increasingly viewing subscriber additions as a less critical metric in the company’s next phase. The focus has shifted to ARPU growth, ad revenue scaling, and content efficiency — areas where the latest quarter underwhelmed.

Content Outlook: All Eyes on “Stranger Things 5” and Holiday Slate

The big wildcard for Netflix heading into Q4 is its content lineup. The company confirmed that “Stranger Things” Season 5 will premiere in Q4 2025, marking the conclusion of one of its most successful franchises. This will be a major global draw — not just for subscribers but for Netflix’s merchandising, gaming tie-ins, and live events strategy.

In addition, Netflix has lined up a stacked Q4 release calendar including “The Crown” final season, new Korean blockbusters, and live sports content such as WWE’s NXT and tennis exhibition events. The strong lineup could provide a revenue and subscriber bump into year-end, though investors may want to see proof of operating leverage improvement before returning aggressively.

Valuation: The Dip Looks Tempting, but Not Cheap Yet

After hours, Netflix stock traded around $595 per share, down from its pre-earnings close near $635. Even with the post-earnings slide, Netflix trades at roughly 33x forward earnings — a premium to most of its streaming peers, including Disney (DIS) at ~22x and Warner Bros. Discovery (WBD) in single digits.

The company’s free cash flow guidance remains unchanged at $6.5–7 billion for FY2025, suggesting underlying fundamentals remain solid. However, the key question is whether this valuation premium is still justified given slowing margin expansion and FX drag.

A potential buy zone could emerge if the stock falls into the $530–550 range, where it would trade closer to 28–30x forward EPS, aligning more closely with its 5-year historical average.

Stock Split on the Horizon?

Investors are also eyeing a potential stock split announcement. After Netflix’s share price recovery from 2022’s lows, speculation has grown that management might pursue a 2-for-1 or 3-for-1 split to make shares more accessible to retail investors — similar to past moves by Apple, Nvidia, and Tesla.

While Netflix has not confirmed any such plans, CFO Spencer Neumann acknowledged earlier this year that “it’s something we keep under review as the stock price continues to rise.” A split wouldn’t change fundamentals but could improve liquidity and retail participation — possibly acting as a sentiment catalyst if announced alongside stronger guidance in Q4.

Market Reaction and Analyst Commentary

Analysts were quick to cut targets following the report. Morgan Stanley trimmed its price target from $700 to $620, citing “near-term margin pressure and uncertain ad scaling timeline.” Goldman Sachs maintained a Neutral rating, noting that “sub growth is impressive but monetization lags expectations.”

Retail sentiment on platforms like X (formerly Twitter) and Reddit’s investing forums has been mixed. Many see this as a temporary setback, pointing to Netflix’s historical pattern of recovering quickly from earnings-related sell-offs. Others argue the stock may be entering a consolidation phase, similar to its 2021–2022 plateau, before the next growth wave.

Verdict: Buy the Dip — But Wait for Confirmation

Netflix remains a streaming powerhouse with strong global engagement, a clear brand moat, and a growing content and ad ecosystem. However, this quarter’s results highlight the fragility of near-term earnings, especially in the face of tax hits, currency pressures, and margin compression.

Investors looking to “buy the dip” should be patient. Historically, Netflix has tended to bottom 2–3 weeks after earnings sell-offs, when institutional buyers re-enter. The $530–550 range offers an attractive technical and valuation entry point if the stock continues sliding.

If Q4 content performance and ad-tier monetization exceed expectations — driven by Stranger Things 5, live events, and global engagement — Netflix could easily retest the $650–700 zone by mid-2026. But for now, the prudent play is to watch for stabilization, not to chase the initial drop.

Key Takeaways

1. Q3 Miss: EPS came in far below expectations due to a Brazil tax charge and FX drag.

2. Guidance Cut: Revenue and margin forecasts were trimmed for FY2025.

3. Subscriber Growth: Still strong at +6.9M, but monetization lagged.

4. Content Pipeline: Q4 lineup anchored by Stranger Things 5 could reignite momentum.

5. Valuation Watch: Ideal buy zone estimated around $530–550.

6. Split Speculation: A potential 2026 stock split could boost sentiment.

7. Verdict: Hold for now; Buy on deeper pullbacks once margins show recovery.

Bottom Line: Netflix’s post-earnings dip underscores the market’s demand for profit clarity, not just subscriber growth. The story remains long-term bullish, but with margins under pressure and ad-tier scaling slower than hoped, this is a time for disciplined patience. For investors eyeing the next leg higher, the best entry may come once Q4’s “Stranger Things” boost meets a more attractive valuation floor.