Why Netflix Stock Is Rallying After Walking Away From Warner Bros.
Key Points
When Netflix was looking to acquire Warner Bros., its share price began to plummet.
Investors appear to have breathed a sigh of relief now that it has abandoned those efforts.
Netflix's business has done exceptionally well in recent years, and there's still more growth ahead.
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An acquisition can transform a company dramatically, sometimes for better or worse. While it can lead to more growth opportunities, it can also create complexity, add cost, and saddle the business with debt along the way.
When it comes to Netflix (NASDAQ: NFLX) and its recent acquisition efforts to acquire key assets from Warner Bros. Discovery, investors appeared to be convinced that the deal was a bad one. The stock was falling amid efforts to acquire assets it believed would enhance its long-term growth prospects. And when the company eventually gave up, paving the way for Paramount Skydance to acquire Warner Bros. Discovery, Netflix's stock proceeded to rally.
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Here's why investors likely weren't thrilled with the deal, and why the streaming stock is a more attractive buy today.
Image source: Getty Images.
The payoff for Netflix wasn't clear to investors
Netflix's bid for Warner Bros. was a significant one, valuing it at $82.7 billion. It's a massive valuation that would have required Netflix to take on debt in order to close the deal. That didn't sit well with investors, given that Netflix has already been doing fine on its own, as its service has approximately 325 million subscribers around the world. By comparison, HBO Max, which it would have acquired in the Warner Bros. deal, has around 130 million.
The company's growth strategy has been working just fine thus far, and attempting to incorporate a big behemoth into its operations would have undoubtedly been costly and complicated. Warner Bros. was already in the midst of breaking up from Warner Bros. Discovery, and while Netflix saw an opportunity to acquire it, the company admitted that the bidding war with Paramount resulted in a possible deal being "no longer financially attractive," and thus, Netflix walked away.
Netflix continues to be a solid growth stock
Shares of Netflix have jumped by 24% in just the past month, as news of the company walking away from Warner Bros. has resulted in many investors breathing a sigh of relief and buying the stock back up again. Netflix has, after all, done a great job all on its own of growing its business over the years. In 2025, its profits totaled $11 billion, doubling in just two years.
Netflix simply has to keep doing what it's been doing to be a top growth stock. Its valuation has crept back up to 38 times its trailing earnings, but the premium may very well be justifiable in order to own a piece of the company, as its financials look solid, as do its growth prospects.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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