Operating margin rose 6.4 points to 34.6% against a year earlier, but the prior-year quarter carried a $619 million Brazil tax expense 210. Operating cash flow rose 12% against a 44% rise in net income 2.
Netflix, Inc · Q3 2026 · Reported 20 Oct 2026 · US
Key figures
Billion USD | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
Revenue | 12.87 | 11.51 | +11.8 % |
Operating income | 4.46 | 3.25 | +37.3 % |
Net income | 3.66 | 2.55 | +43.9 % |
Operating cash flow | 3.16 | 2.83 | +11.9 % |
Operating margin | 34.6 % | 28.2 % | +6.4 pp |
Net margin | 28.5 % | 22.1 % | +6.3 pp |
Figures in USD, as reported. Margins are computed from the reported lines.
The margin gain owes much to a one-off in the comparison period
Operating income rose 37% to $4.46 billion and operating margin reached 34.6%, against 28.2% a year earlier 2. Cost of revenues fell to 47% of revenues from 54%, and management attributes the decrease mainly to lower non-income tax expense because the prior-year quarter included a $619 million expense for Brazil non-income tax assessments 910. The passages give no margin excluding that item, so the underlying improvement cannot be stated precisely.
Content amortization, the core cost, rose $233 million in the quarter 10. Technology and development expenses grew 21% to $1,033 million, faster than revenue, with personnel costs up $136 million 12. Sales and marketing rose 6% and general and administrative expense was relatively flat 11. Below the cost of revenues line, leverage was limited because technology and development outgrew revenue, so the headline margin overstates the improvement.
Revenue growth came from subscriptions and advertising, with a small currency lift
Revenues rose 12% to $12.87 billion, or 11% in constant currency, a company-defined measure 2. Subscription revenue added $1,057 million, which management ties to memberships and pricing, and advertising added $256 million 4. Foreign exchange, net of hedging, contributed a favorable $101 million 4.
By region, LATAM grew fastest on a reported basis at 17%, or 12% in constant currency 5. APAC grew 12% reported and 15% in constant currency, while EMEA grew 11% reported and 9% in constant currency 7.
Net income outran operating income because of a lower tax rate
Net income rose 44% to $3.66 billion, against a 37% rise in operating income 2. The effective tax rate fell to 15% from 18%, which management attributes mainly to larger U.S. federal research and development tax credit benefits 16. Interest expense rose 5% on higher debt 14. The $2.8 billion WBD termination fee was booked in the first quarter and does not affect this quarter 15.
Cash generation lagged profit while buybacks pulled down cash
Operating cash flow rose 12% to $3.16 billion, well behind the 44% rise in net income 22. Management cites $780 million of unfavorable working-capital changes and a $437 million increase in content-asset payments 22. This is weak cash conversion for the quarter, though the passages do not show it as a trend.
Financing outflows rose $2,018 million, mainly because stock repurchases rose $2,940 million, partly offset by $993 million of new debt 23. Over nine months the company repurchased $10.7 billion of stock and had $22.3 billion of authorization left 20. Cash, cash equivalents, restricted cash and short-term investments fell to $8.23 billion from $9.07 billion at year-end, and debt rose to $15.13 billion from $14.46 billion 17.
What to watch next
Whether margin holds without the Brazil comparison, given content amortization and technology and development costs growing in absolute terms 1012.
Whether working capital and content payments keep operating cash flow below net income growth, with $11.8 billion of content obligations due in the next twelve months 21.
How buybacks are funded, with $3,194 million of note principal and interest due in the next twelve months and management saying it may raise debt periodically 17.
Sources
Produced by Clarifo Research with the Clarifo financial research engine from the company's public filings. AI was used in parts of the analysis and drafting. Figures are checked automatically against the filings they come from. This is not investment advice.