The move: Netflix stock fell 4% on Friday, extending a string of declines in the last week. Despite recent volatility, shares are still up 11% year-to-date.
Why: The decline follows the announcement that Netflix reached a $72 billion deal to acquire part of Warner Bros. Discovery’s assets, including streaming, TV, and film studios.
The quest to acquire Warner Bros. Discovery, one of the oldest names in the media industry, quickly morphed into a bidding war between Netflix, Paramount Skydance, and Comcast. However, Netflix came in above rival bidders, offering almost $28 per share to Warner Bros. shareholders.
A deal between Netflix and the HBO Max parent would give the biggest paid streamer a seemingly insurmountable lead, while closing the viewership gap with YouTube.
However, Netflix investors don’t appear to be very excited about the deal, even as it promises to give the media giant an even larger piece of the streaming pie. As rumors of Netflix’s interest in Warner Bros Discovery heated up in recent weeks, the stock tumbled.
The deal comes at a time when investors are highly sensitive to big spending, with major capital expenditures being viewed increasingly with skepticism by Wall Street.
What it means: Netflix plans to spend $72 billion to acquire HBO Max and the Warner studio, which the company could otherwise allocate toward creating original content or enhancing its industry-leading technology.
There’s also the prospect of looming regulatory fights, which could become intense as Netflix attempts to demonstrate that the deal preserves competition in the streaming industry. By contrast, some media observers think Paramount Skydance’s positive relationship with President Trump would give the company a relatively seamless approval process if it were selected as the winning bid.
Another issue is that Netflix isn’t really in the movie theater business, and this deal would likely require them to change their tune, Bloomberg reported last month.
Netflix co-CEO Ted Sarandos said earlier this year that regularly putting films in theaters is an “outdated” model, even though Netflix has occasionally put hits like “K-pop Demon Hunters” or the “Stranger Things” finale on big screens. Such a pivot may concern investors that the company is getting distracted from its core business of at-home streaming.
Morgan Stanley’s Ben Swinburne wrote last month that Netflix had the smallest opportunity for synergies, or cost savings, from a potential deal “and perhaps the toughest regulatory path.”
MoffettNathanson media analyst Robert Fishman predicted that Netflix wouldn’t get swept up in a bidding war and was instead “merely doing its due diligence” by bidding for WBD.
