News and analysis

Shares of Netflix tumbled by more than 10% this Wednesday. There you are, my Precious... So juicy sweet... Stupid fat tax laws... You ruins it... New and strange Brazil tax rules... They stole it from us... We are lost, lost... No business, no Precious, nothing... Only empty... Well, enough Gollum's emotional quasi quotes by J.R.R. Tolkien here. In substance, sales of Netflix's streaming products still remain strong and even become better after climbing another 17% YoY from $9.82 billion to $11.51 billion, including 3.8% QoQ vs $11.08 billion. Still very steep growth, good pace. Even US and UK engagement just hit record levels, up 15% and 22% respectively from late 2022, citing data from Nielsen and Barb, as Netflix itself has stopped providing subscriber numbers in its earnings report to attract more attention to financial indicators. Well, this is exactly what happened, but no shareholder is happy except future shareholders who sleep and see in their dream how to buy some stake in Netflix as cheap as possible.

Netflix has become much cheaper, sliding to around $1,115 so far, from their previous June peaks of nearly $1,350 just months ago, and could possibly even dive into the $1,000 area or even briefly dip below this mark - all due to an unexpected profit shortfall. In fact, profit numbers would have been more than needed to continue Netflix rising rally, as profit grew quarter after quarter through those points at $4.27 bln, $6.61 bln, $7.19 bln consecutively, but now it nominally fell sharply to just $5.87 bln instead of breaking new all-time records. This happened because Netflix CEOs decided to take into account fresh Brazilian tax payments, deeming that the further efforts on legal disputes could be unproductive. Thus, a painful $619 million tax expense is associated with a 10% tax on certain payments made by Brazilian entities to foreign counteragents. In this case, Netflix Brazil pays Netflix US for services that enable Netflix Brazil to offer subscriptions to its Brazilian customers. This had not previously been factored into the company's results and projections. But it became clear that the company has high chances to finally lose the litigation on the case. And this became a potential loss to knock the operating margin for Netflix‘ September quarter.

Providing more colour on what happened, CFO Spencer Neumann stressed “two really important takeaways" that he wanted to share. "The first is that … no other tax looks or behaves like this in any other major country in which we operate. And, secondly, absent this expense, we would have exceeded our Q3 ‘25, operating income and operating margin forecast. And we don’t expect this matter to have a material impact on our results going forward”. Without the Brazilian "culprit", Netflix's operation margin would have exceeded the company’s previous guidance of 31.5%. But they reported an operating margin of 28% after accounting the loss. This national tax on outbound payments is called the Contribution for Intervention in the Economic Domain (CIDE). It’s not a tax that’s specific to Netflix or streaming businesses. Other companies would probably be impacted as well, even though many of them believed that it may apply only to service payments that involve a transfer of technology. Netflix actually "received a favorable ruling from a lower court back in 2022" that concluded "we were not subject to this tax, which is why we believed we couldn’t accrue this”, according to Spencer Neumann. But in August, the Brazil Supreme Court decided against another unrelated company, ruling that “the tax applies to a wider range of transactions than we thought was legally permissible,” including service payments. “So given that court’s ruling, that’s caused us to revaluate the likelihood of prevailing, and we now deem the loss to be probable, and that’s why we recorded the expense in Q3”, he added.

I've gone into such detail because I thought the details were important. Netflix's business can't be harmed by a tax in one country for long, even if it were to be implemented. At worst, they'd simply raise subscription prices for Brazilians and blame their government for the measure. Netflix's other financial metrics are remarkably good. The company noted its record advertising sales. According to co-CEO Greg Peters, Netflix could more than double its advertising revenue YoY. Since Netflix introduced discounted ad-supported subscriptions not long ago, it has yet to provide the exact size of its advertising business. They didn't do it yet, creating an impression that its steady revenue growth is still primarily driven by standard subscriptions and leaving even more room for my dreams on future growth via a rather new channel of ad-supported subscriptions.

In short, I therefore see no reason not to add Netflix stocks at cheaper prices. Speaking of content, I've already written about Christmas time, coming sooner than you blink your eyes, and Christmas holidays always represent a profitable season. Key releases right now also include the final season of Stranger Things, new seasons of The Diplomat and Nobody Wants This, as well as Guillermo del Toro's Frankenstein and Rian Johnson's Wake Up Dead Man: A Knives Out Mystery. The latter movie is exactly what I am personally eager to see. And all of this will happily wake up Netflix stock, I believe, as it is far from being a dead asset.

Shares of International Business Machines (IBM) were down 6.6% in extended trading on October 22 and lower in early U.S. Thursday morning. The famous computing firm delivered upbeat quarterly numbers but missed some expectations in total sales outlook. Slowing growth in the cloud infrastructure segment also contributed to the stock's corrective mood. While more than 80% of price gains over the past 18 months, including 13% of an additional rise above spring highs to fresh all-time peaks above $300 per share as recently as October 7 could perhaps be attributed to the investors' fatigue from this too speedy race of IBM. By the way, it's approximately spring high at $266.45 where the price has slid so far to test this area from above.

Yet, current fundamentals and growing AI-related hopes are still here. As a bright example, IBM’s generative AI Book of Business (the term used by the company itself to track momentum in those specific strategic areas of its business) drove Q3 growth again across nearly its entire product and service portfolio like software, hardware and consulting offerings as it grew to $9.5 billion, up $2 billion vs Q2 results. This very AI book even outweighed the economic impact of such an innovation as the System z17 mainframe upgrade introduced earlier this year.

“AI adoption is accelerating and hybrid cloud remains the foundation of enterprise IT,” IBM President and CEO Arvind Krishna commented during the conference call with analysts. However, sales growth in the hybrid cloud unit, also known as Red Hat, decelerated from 16% growth in the previous quarter to 14% within three months ended by September 30. The pace is highly expected to return to "mid-teen percentage", or "close to that level, entering 2026", Arvind Krishna said, but this issue somehow stole major attention from total Q3 sales of as much as $16.33 billion, which clearly surpasses average pool estimate of $16.09 billion, according to LSEG data.

Software revenue reached $7.2 billion, up 10%, with automation revenue particularly gaining 24% YoY. Some challenges in the consulting market previously led to public concerns that IBM’s consulting sales could show nearly zero growth, but actually the company reported its consulting revenue of $5.3 billion, up 3% percent, including a 5% pace in intelligent operations and a 2% growth in strategy and technology consulting. This reflected "growing demand for AI services as clients need help designing, deploying and governing AI at scale,” Krishna noted. If so, this can hardly be considered a weakness, just as the negative aftertaste is unlikely to be long-lasting from the slightly slower than everyone would have liked, but still very rapidly growing high-margin segments.

The stock was just overpriced before earnings and very soon will find more money flows to invest into. A replay above our target levels just over or around $300 per share that were already held in summer and later shown again in October is the base case for the end of 2025, while the current discount is still over 10% if counting from October 7 peaking price to the vicinity of $268.50 at Thursday opening bell, while the price range from $235 to $255 looks like very strong technical support on IBM charts.

And we have another record on Wall Street. One can hardly believe that only ten days have passed since the epic correction of October 10, with so many volatile moves in gold and crypto, and equity markets as well. However, the tech heavy Nasdaq 100 has made history again, setting its new all-time high above 25,200 points during the first hours of October 21. The benchmark index of 100 companies with huge market capitalization recovered so quickly thanks to investors' calmness regarding the Sino-American trade dispute and remarkable gains from Apple Co. The issue with a value of now about $4 trillion added nearly 4% in a single trading session this Monday to close the day at $262.24.

The climb provided Apple with the position of the second most valuable company in the world after AI-chip giant Nvidia, which is probably going to rise soon too. The fresh data from research firm Counterpoint confirmed that the iPhone 17 series outperformed its predecessor by 14% in early sales in both China and the U.S. This was a crucially positive sign amidst tariff concerns. Many reputable investment houses hastily added Apple to their list of potential outperformers prompting further potential to beat average market bets for the October-to-December quarter report, as the company is set to publish Q3 2025 report on October 30-31 night. Analysts especially noted the growing number of online orders in Asian countries, which was evidence of solid initial demand at launch already. In August, Apple pledged $100 billion in additional U.S. investment to sidestep tariffs damage, reviving the company's growth momentum. Google-parent Alphabet with $3 trillion of its market value also made a solid contribution hitting a new record high of $256.55 to cap 50% gains over the past four months.

Wall St sentiment also got a boost, when U.S. president Donald Trump said in a TV interview that his meeting with Chinese counterpart Xi Jinping in South Korea will go ahead later this month and the U.S. is "going to be fine with China". As we supposed a week before, he promoted the concept of a triple-digit tariffs on China that would not need to be implemented after November 1 or whenever. Besides, U.S. Treasury Secretary Scott Bessent noted he expects to meet with Chinese Vice Premier He Lifeng this week, preventing an escalation regarding levies. Chinese sources say both sides held "constructive discussions" already.

By the way, even if the Nasdaq 100 and the S&P 500 broad market indicators may slip some later after hitting fresh record highs, historical experience shows "no penalty for buying S&P 500" even at all-time highs, according to investigations of the Bank of America. They said in a client's note that investors should not fear buying U.S. equities at record levels, as “over the past fifty years, S&P 500 returns showed no penalty versus buying on any other occasion, and five years later there was on average a meaningful boost”. While “buying equities at all-time highs may feel like a mistake,” historical performance suggests otherwise. However, our team of analysts is banking on at least 7,000 for the S&P 500 accompanied by 28,000 as the next target for Nasdaq 100 futures by the end of the year. Both benchmarks are propelled by possible Federal Reserve interest rate cuts next week and then again in December together with a very strong earnings season. A major pullback would barely happen before then.

Shares of Nestlé jumped by 9.3% on Thursday. The Switzerland-based firm is famous for its long history dating back to the 1860s and a vast portfolio of very popular brands of food, snacks and beverages like KitKat chocolate bars, Nescafé and Nespresso coffee, Gerber nutrition for babies, and Purina pet care. The company reported solid “real internal growth" (RIG) than it was widely expected, even though outlining some cost reductions plans under new chief executive Philipp Navratil.

RIG is a financial metric that measures a company's sales growth purely from volume increases, while stripping out the balloon effect of price hikes and acquisitions. RIG compares the current year's sales volume, valued at the company's prices of the previous year, to the actual sales of the prior year. This seems different from the concept of organic growth, which reflects overall results including new products and opening new locations. While Nestlé 's organic growth for the first nine months of 2025 was at 3.3%, it was reportedly driven by 0.6% of RIG plus about 2.8% from pricing. Meanwhile, its last quarter's organic growth improved to 4.3%, with RIG rising to as much as 1.5%.

The huge progress that has impressed investors so much is complemented by the firm's restructuring plans to generate extra annual savings of CHF 1 billion by 2027. This may come at the cost of cutting 16,000 jobs globally within a frame of the so-called “Fuel for Growth” program. You may like this or not, but market crowds usually like such things when they are effective. Everything is sold everywhere as fast as possible. Americas reported CHF 25.3 billion in sales with 2.5% organic growth. Asia, Oceania and Africa posted CHF 15.3 billion with 2.7% growth. Even the stagnating EU countries altogether recorded CHF 12.8 billion with 4.3% growth in sales. China's market reduced organic growth by 0.8 percentage points in the third quarter, but there is a great potential to contribute more.

Records among product categories are confectionery (+8%), powdered and liquid beverages like  Nescafe Dolce Gusto (Nesquik) etc (+7.5%), Nespresso (+6.7% of organic growth fuelled well by pricing and double-digit numbers in the US and Canada, waters & premium beverages like Maison Perrier and Sanpellegrino (+4.4%). And all this taken together will generate operating profit margin exceeding 16% and supposedly more than CHF 8 billion in free cash flow in 2025. The accomplished clear break through the "double bottom" pattern technical resistance this week has already resulted in a price touch of above CHF 83, paving the path for the further move to at least CHF 90, if not CHF100.

Navratil said his priority is to strengthen growth through sharper execution and disciplined resource use. “Driving RIG-led growth is our number one priority,” he emphasized, as “the world is changing, and Nestlé needs to change faster”. I can't read his mind but I am buying this.