Insights 
VT 
Netflix shares dropped over 6% in after-hours trading after the company reported lower-than-expected net income due to a one-time payout to settle a tax dispute in Brazil, costing more than $600 million. This tax bill significantly impacted Netflix’s earnings, which otherwise showed revenues in line with analyst estimates at $11.51 billion for the last quarter.
Despite this, Netflix’s free cash flow was reported at $2.6 billion, exceeding expectations, and its forecasts for free cash flow in FY 2025 were adjusted to $9 billion. This increase in free cash flow coincided with strong consumer engagement, driven by popular content like Happy Gilmore 2 and K-pop Demon Hunters, resulting in a revenue growth of 17% over the year.
Looking to the future, Netflix plans to release major titles such as the Stranger Things finale, a Frankenstein movie, and a new Knives Out satire. The CEO mentioned using free cash flow for share buybacks and more programming, and hinted at potential mergers or acquisition activity.
While any M&A could influence Netflix’s cash flow and share price, the Brazil tax issue is considered a one-off. The recent dip in share price might be temporary, given the overall solid earnings report.
The 6% after-hours drop in Netflix to around the $610 level is creating a classic overreaction scenario. Implied volatility for options expiring in the next 30-45 days has spiked, which presents an opportunity for us. This short-term fear is disconnected from the strong underlying business performance, aside from the one-off tax issue.
We should consider selling out-of-the-money put spreads, like the November $590/$580 strikes, to take advantage of this elevated premium. The company’s upgraded free cash flow forecast of $9 billion for 2025 and planned share buybacks provide a strong floor for the stock. This strategy profits if Netflix simply stays above our short strike price by expiration.
Fears about competition seem overblown, and recent data supports this view. Nielsen’s streaming report for September 2025 showed Netflix commanding 8.1% of total U.S. television viewing time, holding its ground despite heavy promotion for live sports on competing platforms. This sustained engagement is why revenues grew a healthy 17% year-over-year.
We’ve seen this play out before with Netflix. Looking back to the market’s reaction in April 2024, a similar 9% dip on guidance concerns was fully recovered within six weeks as the focus returned to content strength and profitability. The current situation with the Brazil tax bill feels like a repeat of that short-term noise.
The potential for M&A activity, possibly involving assets from Warner Brothers, adds another layer to consider. While a large deal could pressure cash flow, any talk of acquiring proven content libraries is likely to be viewed positively in the long run. This chatter could keep volatility from completely collapsing, making premium-selling strategies even more attractive over the next few weeks.
