Netflix faces headwinds amid earnings tax dispute
"yeah, I mean, we talked through two names in the green. Let's talk about one that ended in the red. This is Netflix, ticker NFL, the third biggest decliner in the S&P 500, shedding more than 8% this week. It lost 10% on Wednesday after, of course, we know its earnings revealed a tax dispute with Brazil, which cut into its third quarter earnings. Of course, this is a company where a lot of investors are used to upside surprises here. So, this was definitely uh drag on the company this week. And of course, this really just raises broader growth concerns for investors that are used to positivity here for the stock. But shares of Netflix still up at 23% this year."
The segment reviews Netflix's disappointing performance, highlighting an 8% decline driven by a 10% drop on Wednesday, which was attributed to a tax dispute with Brazil affecting earnings. Broader growth concerns are emerging despite a 23% year-to-date gain.
Netflix Stock Rated as Buy Despite Earnings Miss
"So to update my recommendation, I will keep Netflix stock rated as a buy after evaluating those results. And here's an example of um why you know surrounding earnings events. Sometimes it's better to wait for the earnings to come out, digest the figures, and then make your allocation, especially when you had a company that was trading at a relatively expensive valuation going into the earnings release."
The speaker reviews Netflix's Q3 earnings where missed operating margin forecasts, due to an unexpected one-time tax expense in Brazil, led to a downgrade of its full-year margin forecast. Despite these issues, he emphasizes Netflix's structural strengths and dominant position in streaming, updating his recommendation to maintain a buy rating on NFLX.
Caution on Netflix Over High Multiples Despite Strong Earnings
"Let's now move on to Netflix stock because Netflix has been getting hit pretty hard in the market today. Their revenue grew 17% which was in line with guidance, but the operating margin was below expectation due to a Brazilian tax dispute. Despite strong earnings in revenue, margins and free cash flow, Netflix is trading at about 50 times cash flow. That high multiple makes the stock very expensive in my opinion and is the main reason I do not like buying it."
The speaker provides commentary on Netflix, noting that even though the company reported strong revenue growth and margin expansion, its high valuation at 50x free cash flow renders it expensive. He attributes the recent sell-off partly to a one-time tax expense and argues that the lofty multiples make Netflix a less attractive buy.
Netflix Earnings and Tax Dispute Concerns
"Netflix taking a hit down about 9.9% right now. This after the company said yesterday that there was a tax dispute with Brazil that cut into thirdarter earnings. It raised growth concerns among investors. Operating income came about $400 million below the company's forecast and analyst estimates. Revenue failed to beat Wall Street estimates, too. And then last night on the earnings call, Ted Sarandos, the co-CEO of Netflix, uh I don't know, is it fair to say he ruled out purchasing Warner Brothers Discovery? It sounded like he did. He did, but there's always a butt. There's always a butt. I mean, maybe he'll maybe he'll go for the studio portion of it. We shall see."
The Netflix commentary centers on its recent earnings miss, tax dispute in Brazil, and cautious outlook as indicated by co-CEO Ted Sarandos. The discussion reflects significant downward pressure with operating income and revenue underperforming forecasts, causing growth concerns.
Netflix Decline Amid Tax Dispute Concerns
"Let's talk about Netflix. Down 10% today. Biggest decline going back to April of 2022. Is after we learned about a tax dispute with Brazil cutting into third quarter earnings."
The speaker notes that Netflix fell 10% on the day, marking its steepest decline since April 2022 due to a tax dispute with Brazil. This commentary flags a potential catalyst impacting third quarter earnings, suggesting caution for investors.
Netflix Faces One-off Tax Headwind
"Netflix down 6.5%. Nathan, a surprise $600 million tax dispute with Brazil cut into its earnings, which meant its operating income came in less than expected. Executives were quick to say they don't expect this issue with Brazil to have a meaningful impact on quarters to come. It was just a one-off charge. But outside of this, the earnings looked pretty decent."
Netflix reported a 6.5% decline due to a one-off $600 million tax dispute in Brazil, though management reassured investors that the issue is isolated and future quarters should remain strong.
Netflix Faces Downside from Tax Dispute Despite Strong Engagement
">> One more slip in here. 30 seconds. One more. Netflix, NFLX. Okay, so they had strong programming. I mean, K-pop Demon Hunters. We can't go wrong, right? Um, record subscriber engagement, beat him free cash flow, but the shares are down about 7% because of this multi-year tax dispute with Brazil. going back to 2022, it cut into its third quarter earnings. They had to pay about $619 million to settle it. So, that's the bad news for them. But there's also, you know, other news, possibility of mergers, acquisitions because of that free cash flow money. Um, could say they may buy some of Warner Brothers Discovery. That's what Bloomberg is reporting. But we shall see."
The speaker notes that Netflix delivered strong programming and subscriber engagement with robust free cash flow, yet shares dropped 7% due to a significant tax dispute settlement. They also hint at future M&A possibilities, creating a mixed outlook.
Netflix remains unbeatable in long-form streaming
"As one analyst said in a Netflix note, "Congratulations on your engagement because their engagement with the biggest movie they've ever had over this last quarter, which got 500 million views, was a true testament to their prowess in long-form streaming. Despite other challenges, Netflix has cracked the code on pricing, boasts an enormous programming budget, and has a strong global presence with international production and a growing ad revenue business. Put all that together and they're going to remain the king. They will remain the king."
The speaker relays Tom Rogers' strong endorsement of Netflix, emphasizing its dominant position in long-form streaming through robust pricing, production capabilities, and a growing global audience. This commentary reinforces Netflix's enduring leadership despite market challenges.
Netflix Earnings Hurt by Tax Dispute Expense
"Our own Lucas Shaw out with his first take on earnings. Uh writing that a tax dispute with Brazil cut into third quarter earnings at Mars results that otherwise fell in line with Wall Street estimates. Uh Netflix had to pay about $619 million to settle a multi-year tax dispute with Brazilian authorities going back to 2022, but the company said it would have beaten forecasts if not for that expense. Shares down just about 5.75%."
The segment highlights that Netflix incurred a significant tax expense of approximately $619 million due to a multi-year dispute with Brazilian authorities, which negatively impacted its quarterly earnings. The commentary notes that without this expense, Netflix might have outperformed forecasts, as evidenced by its roughly 5.75% share decline in after-hours trading.
Tax Dispute Lifts Concerns at Netflix (NLX)
"That's right. So Netflix, ticker NLX, down about 5% right now in the post market. The revenue forecast missed estimates with a projection around 45.1 billion, falling in the midpoint of their previous range. Then they mentioned a tax dispute with Brazil that cut into third quarter earnings, marring results that otherwise aligned with Wall Street expectations. The streaming company had to pay $619 million to settle a multi-year dispute, and they noted they would have beaten forecasts if not for that expense."
The commentary points out challenges for Netflix as its post-market price drops by 5% due to a miss in revenue forecasts and an unexpected $619 million tax settlement in Brazil. This tax dispute negatively impacted earnings, raising concerns despite otherwise solid performance figures.