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Shares of Netflix declined Tuesday after the streaming giant reported quarterly profits that missed market expectations. Netflix posted a profit of $2.5 billion on revenue of $11.5 billion for the most recent quarter, citing a $619 million expense related to an ongoing dispute with Brazilian tax authorities. In a letter to shareholders, Netflix stated that its operating margin would have exceeded forecasts had it not been for the Brazil-related expense.
"We don’t expect this matter to have a material impact on future results," Netflix said in the letter.
Netflix shares were down more than five percent to slightly more than $1,173 in after-market trades that followed release of the earnings figures. Netflix viewership in Britain and the US reached their highest levels in about three years, powered by a lineup that included its most popular film ever, "KPop Demon Hunters," according to the earnings release.
An ad-supported membership level had its best sales quarter to date as Netflix continues to challenge traditional television programming, the company said.
"Netflix had its best ad sales quarter to date but still did not provide a figure for how large the ad business is," said Emarketer senior analyst Ross Benes. "This gives the impression that the sustained revenue growth achieved this quarter, and forecasted for next quarter, will predominantly continue to come from subscription fees."
Netflix touts itself as one of the world's leading entertainment services with over 300 million paid memberships in over 190 countries. It is rumored to be bidding on global entertainment company Warner Brothers Discovery, analyst Benes noted.
"For that potential purchase to best compliment Netflix, the planned split of WBD would make its studio more attractive without bogging it down with TV networks that aren't as agile as Netflix," Benes said.
Netflix expressed confidence in its momentum in the current quarter, citing attention-getting shows including the final season of "Stranger Things" and "The Diplomat." A new "Knives Out Mystery" is also slated for release on the platform this quarter, as well as ramped up live events including professional American football and boxing.
