Netflix After the Warner Deal: What Investors Should Know

A Changing Story for Netflix Stock

TradingKey - For quite some time now, Netflix (NFLX) has been regarded as the premier subscription-based streaming service in the world, with a well-established history of growth through creative use of pricing power, developing hit programming, and relying very little on outside sources for licensing. 

The company's growth narrative was altered when it announced an agreement to purchase Warner Bros. Discovery’s (WBD) studios and HBO for approximately $82.7 billion in enterprise value and approximately $72 billion in equity value by acquiring Warner Bros. studios and their respective streaming operations and placing a cash and stock offer of $27.75 per share. 

While some have questioned whether this acquisition might be indicative of a need to fix a broken model, Netflix believes that they only have a need to continue demonstrating capital discipline; however, this acquisition has provided new perspectives on valuation and has caused additional questions regarding risk factors associated with the company going forward.

Strong Fundamentals Meet a New Level of Risk

Operationally, Netflix continues to perform at a high level. In the fourth quarter, revenue came in at $12.05 billion, slightly ahead of Wall Street estimates and up nearly 18% year over year. The growth rate picked up modestly compared to the 17% pace of Q3. Earnings per share also came in ahead of expectations.

Operating income surged 30% from the year-ago period, with operating margin expanding by 2.3 percentage points to 24.5%, both well above analyst forecasts. Free cash flow reached $1.87 billion, up more than 30% year over year, while operating cash flow grew by 37% to $2.11 billion—again beating expectations by a wide margin.

However, Netflix’s guidance for the first quarter of 2026 was more cautious. The company expects revenue of $12.16 billion, narrowly missing consensus estimates of $12.17 billion. EPS is projected to grow 15.2% year over year, down from more than 17% in Q4, and notably below Wall Street’s expected 24.2% increase. At $0.76, Q1 EPS guidance sits 7.3% below analyst consensus.

The goal of Warner Bros.'s acquisition is to increase momentum. Greg Peters, Co-CEO, says the acquisition will boost our offering and accelerate our business for years to come. 

Netflix intends to keep Warner Bros.'s operating structure intact, as it impacts their creative production, even as they restrict the amount of possible cost savings through integrated cooperation. 

This change from flexible spending on content to a substantial, primarily fixed investment invites additional potential outcomes and has investors debating whether or not Netflix needs to own additional franchises/studios to continue to grow quickly.

Why is Netflix stock down now?

Uncertainty is reflected in the market activity related to Netflix. Since Netflix's highest price in the summer of 2025, the stock price of Netflix has fallen by more than 33%. 

Netflix has continued to drop in price since December 5th, when it was announced as the successful bidder for Warner Bros. Discovery. As a result of the selloff, it has almost erased any value that investors thought they had in the deal.

The magnitude of the reaction is heightened by the variable nature of valuations. Netflix (NASDAQ: NFLX) shares are currently selling at approximately 31 times earnings. The valuation multiple has decreased approximately 20% from a year ago. 

Given the magnitude of this merger, the multiple may continue to decrease substantially if investors come to believe that the new content, studios, and distribution networks will not provide the returns anticipated by management. 

Major mergers have a sporadic track record at best; in most cases, acquirers have paid more than their fair share of the purchase price, the strategic objectives have proved difficult to implement, and the expected synergy has not developed as forecasted.

Netflix Stock: Buy, Hold, or Wait?

Even skeptics concede that the business remains high quality. The company has never reported an annual decline in revenues and has had continuous profitability since becoming publicly traded, which distinguishes it from the older generation of media companies, many of whom had trouble making streaming profitable or are now selling out of their stock. 

As a result of this historical consistency, all past investors who purchased their shares during a pullback have been rewarded for their investment once the company has successfully launched several new waves of profitable growth.

According to bullish analysts, Netflix can be successful without Warner Bros. Discovery and has the financial strength needed to independently purchase a top-tier content supplier without needing to rely on outside investors. 

They cite some continuing growth catalysts: Peters said that Netflix's ad-supported tier is slated to more than double its advertising revenues this year; Netflix has added "new engagement" with its popular podcast content via agreements with Barstool Sports, iHeartMedia, and Spotify; the company launched Party Games in an attempt to expand its entertainment footprint; and Netflix is going to increase its commitment to live sports programming by offering WWE pay-per-view events as well as NFL games on Christmas Day, MLB games next year, and FIFA Women's World Cup matches in the years 2027 and 2031. 

Long-term holders of Netflix stock have an impressive return: shares have risen about 679% over ten years, and about 25,310% over the past twenty, during which time, the business created an entirely new category and continues to dominate within that category.

In the pessimistic view, the problematic part of the deal is less about an ineffective platform than it is about an expanded rubric of potential outcomes. 

That is, the acquisition suggests Netflix's advantage with respect to original content is less than previously thought, and that being bigger than the out-executing every other studio will not work solely based on size. 

While protecting the artistic community by keeping Warner Bros. intact maximizes the protection of its artists and provides additional opportunities to realize cost savings, transitioning to a single, huge discretionary budget rather than multiple flexible budgets exposes the market to execution and integration risk, which will continue to keep the multiple declining until investors can see how an $82.7 billion enterprise value acquisition of a studio will actually generate high returns.

What the Warner Deal Means for Netflix’s Future?

The financial information regarding Warner Bros. Discovery’s agreement indicates that its assets will be valued at $27.75/share (or approximately $82.7 billion enterprise value & approximately $72 billion equity value), which is likely to change how investors evaluate Netflix’s capital commitment in terms of its valuation. 

Proponents of the Warner Bros. Discovery agreement believe that the new franchise model will have much deeper IP libraries and greater ability to distribute IP on a global basis than before; opponents of the Warner Bros. Discovery agreement are concerned about the high cost of capital, the debt position of the combined company, and the risk associated with the integration costs being high enough that it could consume the time and resources of management during the time frame of the core franchise growing at an aggressive rate. 

A transaction of this nature takes a content spend plan that has been built around calibrated amounts of capital to be spent and transforms it into a long-term capital commitment, with the market providing a much larger margin of safety until there is greater clarity as to the direction the company will take in the coming years.

Who Owns Netflix Stock?

Questions like who owns Netflix surface whenever strategy takes a sharp turn, because ownership can influence time horizons. Netflix completed its IPO on May 23, 2002, at $15 per share.

 (As of Late 2025)

 Is It Time to Buy the Dip in Netflix?

Analysts believe Netflix is currently being re-evaluated compared to other companies in the industry. Netflix has received a mid-level score from one of the leading analysis tools that measure the company’s profitability. Looking at Netflix’s historical performance, there does appear that it continues to perform very well from a business model standpoint.

Supporters of the company feel that this is a long-term winner and, although the stock price at times may seem overvalued, there will be future opportunities to buy shares at lower prices when the stock has experienced a pullback. 

Those who are not bullish (or have a non-positive outlook) on Netflix think that the company has shifted towards a capital-intensive pivot in business operations and will need to continue to demonstrate its ability to generate significant returns over the life of its 82.2 billion-dollar enterprise value.

The bottom line is that this stock may not be a good short position, nor does it automatically mean that this will be a long-term winner, especially considering that all the elements of how this deal will ultimately be valued are still to be determined. 

In the interim, while monitoring the execution of the use of leverage to fund operations, and an ad-supported revenue generation model, Netflix represents the most logical default position.