[Photo Credit: Reuters]

Netflix (NFLX.O), opens new tab missed Wall Street’s third-quarter earnings targets because of an unexpected expense from a Brazilian tax dispute while it offered a forecast a touch ahead of Wall Street projections for the rest of the year.

The report failed to impress investors accustomed to fast-paced growth from the streaming video pioneer. Shares of Netflix, which had risen 39% this year ahead of the earnings release, fell 5.6% to $1,171.24 in after-hours trading on Tuesday.

Netflix is seeking to expand in new areas such as advertising and video games after attracting more than 300 million customers around the world. It faces competition from YouTube (GOOGL.O), opens new tab, Amazon’s (AMZN.O), opens new tab Prime Video, Disney+ (DIS.N), opens new tab and others. The media business is facing major changes including the potential sale of industry titan Warner Bros Discovery WBD.O and the rise of generative artificial intelligence with the ability to produce short videos. CNBC reported that Netflix was among the parties interested in examining Warner Bros’ assets.

Netflix Co-CEO Ted Sarandos, in response to analysts’ questions about possible media consolidation, said the company “can and will be choosy” about acquisition targets. He said the company has no interest in owning legacy media networks but would evaluate opportunities to buy intellectual property.

Co-CEO Greg Peters said he did not believe media industry consolidation would make things more challenging for Netflix.

Netflix posted net income of $2.5 billion and diluted earnings-per-share of $5.87 for July through September, a period when the animated “K-Pop Demon Hunters” became the most-watched movie in Netflix history. Analysts had expected $3.0 billion and $6.97, respectively, according to LSEG.

Revenue was even with forecasts, at $11.5 billion.

Netflix reported an operating margin of 28% for the third quarter. Without the Brazilian tax expense of roughly $619 million, the margin would have exceeded the company’s guidance of 31.5%, it said, adding that it did not expect the matter to have a material impact on future results.

PP Foresight analyst Paolo Pescatore said he believed the tax issue weighed on Netflix shares.

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