Predictably, NFLX stock is down sharply. As the market opens the morning after the report, the stock is down nearly 7.5%. In fairness, that takes the stock price back to where it was in early August. As Netflix investors know, the stock has been trading in a range that has lagged the market. It’s now trading right around a key support level.  

The question investors will be pondering is whether the earnings miss is just a one-off bit of news or is it a signal that there’s something to change the narrative on NFLX stock. 

A Tax Dispute or the Canary in the Coal Mine? 

To be clear, Netflix management said the reason for the earnings miss stemmed from an unexpected $619 million expense that stemmed from a tax dispute with the Brazilian government. Without that expense, the company said it would have met its margin target. 

As support for that, the company forecasted fourth-quarter revenue of $11.96 billion, higher than the $11.90 billion that analysts are expecting. Plus, Netflix expects to deliver EPS of $5.45, above estimates for $5.42. For the full year, Netflix guided to $45.1 billion, which is near the upper end of its prior guidance for between $44.8 to $45.2 billion.   

On a more bearish note, the company did guide to lower full-year operating margins, and that has some investors wondering if the one-off tax expense is the canary in the coal mine. That is, is it a distraction that points investors away from slower growth. Skeptics have been unhappy ever since Netflix decided to stop posting subscriber metrics.  

Netflix Has Earned the Benefit of the Doubt 

On the other hand, growth is growth. On a year-over-year basis, earnings per share were up 8% despite missing estimates, and revenue was up 17% over that same period. That suggests—but doesn’t confirm—that the company is having no trouble adding new subscribers and, more importantly, retaining its current subscriber base. 

The company also reported its strongest ad sales in a single quarter and remarked that it was on track to more than double that revenue in 2025. Netflix is also taking steps to expand into areas like live sports and video games to attract more subscribers with exclusive content.  

And investors can feel confident in the company’s ability to believe that because of its past track record. It was just about three years ago that some investors doubted Netflix’s ability to maintain its subscriber base as it added a lower-priced ad-supported tier and started to crack down on password sharing.  

Both of those initiatives went against the principles that Netflix was founded on. But in the end, it hasn’t mattered, and Netflix has become a healthier company because of it, and investors have profited. The stock has increased by over 328% in the last three years.  

However, NFLX stock is expensive. This could mean that this pullback is an opportunity for investors who believe in the company’s long-term future. 

Analysts seem to agree. The morning after the report, several analysts weigh in on NFLX stock. Wells Fargo didn’t raise its target, but its new target of $1,510 (down from $1,560) is 16% higher than the consensus price target and would increase by over 30% from its current price.  

Netflix Stock: Trade It or Own It 

Your reaction to the Netflix earnings report has a lot to do with your opinion of the stock. If you’re a trader, it’s probably time to sell and wait for a better entry point. Since the company guided for lower operating margins in the coming quarters, it’s reasonable to expect that NFLX stock may have further to fall. 

That’s what can happen when a stock trades at around 52x earnings. That’s called being priced for perfection, and the company’s report wasn’t perfect.  

This pullback is also a lesson in the law of large numbers. Investors look at a 7.5% drop, but can quickly forget that NFLX stock is still up over 39% in 2025 and 62% in the last 12 months. A sell-off isn’t just healthy, it’s probably necessary to allow the stock room to move higher. 

However, if you’re an investor, this could be an opportunity. In fact, if you’re committed to holding Netflix stock for the long haul, you wouldn’t mind seeing the stock drop lower so you can accumulate shares at a lower price.