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Today's Bonus Content
Why Losing the Warner Bros. Deal May Be the Best Outcome for Netflix StockAuthored by Leo Miller. Publication Date: 3/31/2026. 
Key Points
- Despite losing its bid to buy Warner Bros., Netflix likely put in its Q1 bottom as investors rallying behind it.
- From Warner Bros.'s deteriorating performance to a multi-billion-dollar termination payout, Netflix may have actually come out on top in the acquisition saga.
- The streaming company will re-center on organic growth, which has been the key to its past success.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
After a protracted and public effort, streaming services giant Netflix (NASDAQ: NFLX) officially bowed out of its bid to acquire Warner Bros. Discovery (NASDAQ: WBD) in late February. Many viewed the potential blockbuster deal as one that could further increase NFLX’s dominance in the entertainment industry. However, losing the bidding war to Paramount Skydance (NASDAQ: PSKY) may leave the company in better financial shape going forward.
There's a company sitting on a deposit independently valued at $2.8 billion - currently trading at a market cap of roughly $700 million. That's a 4-to-1 disconnect.
The Pentagon has already invested. Lockheed's Skunk Works signed a research partnership, and the EXIM Bank is processing up to $800 million in financing. A federal deadline of July 13, 2026 is forcing the issue.
The stock is still trading under $6. Check the valuation math and get the ticker now
In the aftermath of the failed WBD takeover bid, here’s what current shareholders and prospective investors can expect from Netflix moving ahead. Investors Flocked to Netflix as Acquisition Chances FadedShares of Netflix surged in late February as markets concluded the company was unlikely to win the Warner Bros. deal. On Feb. 24, Warner Bros. said it had received Paramount Skydance’s revised offer, which ended up at $31 per share. Two days later, Netflix said it would not raise its offer. On Feb. 27, Warner Bros. announced that Paramount Skydance would acquire it. That sequence proved a short-term catalyst for Netflix. In just four days, shares of NFLX rallied by 23%, signaling that the market preferred Netflix to remain independent rather than pursue the acquisition. Several factors drove the share move. First, the $72 billion equity value Netflix reportedly considered paying was steep. The run-up in WBD shares reflected acquisition developments more than improved operational performance. At the end of 2024—before acquisition rumors ramped up—Warner Bros.' market capitalization was just $26 billion, roughly one-third of the equity value Netflix was reported to have offered. Meanwhile, Warner Bros.' operational metrics weakened in 2025. Revenues fell by 5% on a constant-currency basis, its worst decline in well over a decade. Adjusted earnings before interest, taxes, depreciation, and amortization declined 3%, and free cash flow dropped 30%. Adjusted earnings per share did improve from a loss of $4.62 in 2024 to positive $0.29 in 2025, but much of that swing resulted from a large change in non-cash impairment losses. Warner Bros. took an enormous $9.6 billion impairment loss in 2024. Because that outlier was recognized that year, impairment losses fell to just $172 million in 2025—a normalization rather than evidence of operational improvement. Given those trends, it was reasonable to question whether Netflix should have paid a premium for a company that weakened through 2025. Termination Fee and Yield Movements Give Netflix a WindfallBy withdrawing its bid, Netflix also realized immediate financial gains and likely avoided costly financing. Paramount paid Netflix the $2.8 billion termination fee, a meaningful sum equal to about 30% of Netflix’s 2025 free cash flow of $9.46 billion. Analysts had expected Netflix to take on roughly $50 billion in new debt to finance the deal, which would have dramatically increased the firm’s debt from approximately $14.6 billion at the end of Q4 2025. At the same time, yield on corporate bonds has risen meaningfully—from about 4.7% to nearly 5.1% since Netflix first announced its offer—so interest costs on any new debt would likely have been materially higher than initially anticipated. Netflix to Refocus on Organic GrowthLooking ahead, Netflix will concentrate on driving organic growth and improving profitability within its existing business. The company has demonstrated such an ability: operating margin expanded an impressive 830 basis points from 2023 to 2025, and growth recovered to a solid 16% in both 2024 and 2025 after running only 6%–7% in the prior two years. Still, long-term growth has decelerated as the platform becomes more widely adopted. Netflix needs sustainable drivers to prevent further slowing. To that end, the company recently announced $1 to $2 price increases across all tiers—its second price hike in as many years. The standard plan now costs $19.99, the highest or tied for the highest among popular streaming services. Those prices are up roughly 29% from $15.49 in 2023. That raises questions about how long Netflix can rely on price increases to fuel growth, making strong execution in live sports, ad-supported tiers, and international expansion key. The company expects ad revenue to double in 2026, and on March 25 Netflix expanded its prime-time sports footprint by airing Major League Baseball's Opening Night. Analysts See 20%+ Upside, but Long-Term Outlook Is Less CertainAnalysts remain broadly bullish, with a consensus 12-month price target near $115—implying roughly 25% upside. Price targets updated after Netflix withdrew its WBD bid are slightly higher, averaging about $117. Shares are still down roughly 10% compared with levels when Netflix first announced its intention to buy Warner Bros. NFLX now trades at a forward price-to-earnings ratio near 30x, modestly below its three-year average of about 35x. Overall, Netflix shares don’t appear dramatically undervalued. The company retains several levers to drive long-term gains, but whether it can continue to outperform market indexes is uncertain. |
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