Netflix Wins By Losing Warner Bros. Deal, Analysts Say

Netflix (NFLX) stock jumped Friday after the internet television network abandoned its costly bid to buy the studio and streaming units of Warner Bros. Discovery (WBD).

Late Thursday, Netflix announced that it would not raise its offer after the Warner board of directors determined that the latest proposal from Paramount Skydance (PSKY) was superior to Warner’s existing merger agreement with Netflix.

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In a statement, Netflix co-CEOs Ted Sarandos and Greg Peters said pursuing the deal no longer made sense for Netflix.

“We’ve always been disciplined, and at the price required to match Paramount Skydance’s latest offer, the deal is no longer financially attractive,” they said. “This transaction was always a ‘nice to have’ at the right price, not a ‘must have’ at any price.”

Paramount will pay $31 a share in cash for WBD or about $80 billion. However, the total transaction is worth about $110 billion when including the assumption of $30 billion of Warner debt.

Further, Paramount will pay the $2.8 billion termination fee that WBD is required to pay to Netflix to terminate the previous merger agreement.

Netflix Decision Removes Overhang On Stock

“Netflix is the biggest winner in the Warner Bros. Discovery sweepstakes,” EMarketer senior analyst Ross Benes said in a report. “Netflix earns a termination fee paid by Paramount. (And) by driving up the price, Netflix raised the amount Paramount had to pay, which will ultimately burden Paramount-WBD with more debt.”

Plus, Paramount and WBD will be tied up with government regulators for a year or more, he said.

Netflix stock analysts were skeptical about the Warner deal from the start, given the steep price and likely antitrust challenges.

On the stock market today, Netflix stock rose 13.8% to close at 96.24. However, Netflix stock is well below its all-time high of 134.12, reached on June 30, before speculation started that it might make a play for Warner.

Streamer To Refocus On Organic Growth

Netflix bowing out of the bidding war will be a relief to investors, HSBC analyst Mohammed Khallouf said in a client note. The subscription streaming video leader can now return to focusing on organic growth, he said.

“We salute management’s discipline and see gains with competitors now distracted,” he said. Khallouf rates Netflix stock as buy with a price target of 106.

“Netflix’s withdrawal from the race will leave it free to refocus on its business, while its closest competitors grapple with long and distracting regulatory approval and merger integration processes, and with PSKY saddled with sizable deal debts,” he said.

Oppenheimer analyst Jason Helfstein said he expects Netflix now to lean into share buybacks, pursue global sports deals and offer greater incentives to content creators. He rates Netflix stock as outperform.

Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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