Netflix’s Q3 results were ‘somewhat underwhelming,’ analyst says

00:00 Speaker A

Let’s get right to these results, Geetha. You know, I mean the stock was this it was up about 40% year to date heading into the print. Uh down in the after hours here. It sounds like Netflix Geetha is saying, calling out this tax dispute with Brazil. They’re saying that’s what really sort of impacted the quarter here and the bottom line, but walk us through it. What what do you see in the report?

00:29 Geetha

Yeah, I think that’s the first thing that, you know, people kind of really looked at in terms of the uh operating margin and why they missed. Uh I think investors were really looking for uh management to actually increase their operating margin guidance from 30% for the full year 2025 to a little bit more, maybe 31, 32%. They’ve actually now taken that down and it looks like a lot of that can be attributed to the 3Q operating margin miss. So definitely somewhat underwhelming, uh just because we know that both third quarter and fourth quarter uh is supposed to be one of their best content slates ever. We’ve seen some very, very strong and encouraging metrics when it comes to engagement. You know, you had the breakout hit with K-pop Demon Hunters. Uh, you know, so all of that was kind of really feeding into I think this investor frenzy for for for better results, but you know, obviously the tax dispute was something that nobody could have foreseen.

01:14 Speaker A

They are, it sounds like touting Geetha, what they’re calling record subscriber engagement. What are the the trends and themes there? What are your questions around that metric?

01:26 Geetha

Yeah, so that’s exactly what they’ve been telling us all through. So the first half and they already reported metrics uh in terms of, you know, overall viewing hours, overall engagement, that was somewhat muted, I would say, uh from the first half of this year when you compare to last year. But then you look at uh you know, we’ve just run some internal numbers as well. Uh you look at the third quarter engagement metrics, really, really strong and that’s exactly what they’re referring to in their investor newsletter. We’ve we’ve seen something like a 20 to 22% surge in engagement and a lot of that just from all of those big monster titles. I mean, you have three of their most watched ever series just debuting in the third quarter. You have, you know, K-pop Demon Hunters, which we just spoke about, biggest movie of all time, uh which came up in in the third quarter. And then of course, you had Squid Game season three as well as Wednesday season two again, some of their most watched series ever. So all of that really driving very, very good engagement. And remember engagement is the way that we are going to kind of evaluate this company going forward because content drives engagement, drives monetization and that’s really where Netflix’s pricing power, uh kind of is is, you know, is anchored.