Netflix (NFLX) shocked the entertainment industry and the stock market with its blockbuster bid to acquire Warner Bros. Discovery’s (WBD) premium assets, including the iconic Warner Bros. studios, HBO, HBO Max, and a vast library of franchises like Harry Potter, DC Universe, and Game of Thrones.
Announced on Dec. 5, the deal values the assets at approximately $72 billion in equity (with an enterprise value of $82.7 billion), structured as a mix of cash and stock. The move follows a competitive bidding process involving rivals like Paramount Skydance (PSKY) and Comcast (CMCSA). While the acquisition promises to create a streaming powerhouse, it has sparked debate among investors about risks, including debt, integration challenges, and regulatory scrutiny. The question for investors is, should you sell NFLX stock before it wins the bid?
The market’s response to the Netflix-Warner Bros. deal has been decidedly negative for NFLX shareholders, reflecting concerns over the financial and strategic implications of such a massive transaction. Although Netflix says the deal is all about “growth,” investors appear wary of Netflix’s shift from its traditional organic growth model to a large-scale acquisition, especially one involving Hollywood assets.
NFLX stock closed at $93.50 per share on Tuesday, Dec. 23, down 6.7% from where it traded before the deal news. Despite the pullback, the stock trades at 10x sales and 37x forward earnings, a premium multiple that underscores high growth expectations but also indicates it remains vulnerable to further setbacks.
The deal’s structure adds to the worries. Netflix will pay $23.25 in cash and $4.50 in stock per WBD share (subject to a collar), requiring it to drain its cash reserves and potentially raise additional capital through debt or issuing equity. This comes at a time when interest rates remain elevated, increasing borrowing costs and leverage risks.
Integration poses challenges, with Netflix’s data-driven, agile culture contrasting with Warner Bros.’ traditional Hollywood operations. It raises fears of execution risks similar to past media mergers that destroyed value. Fortunately, the deal excludes WBD’s declining linear TV assets (like CNN and TNT), which Warner Bros. will spin off as Discovery Global in late 2026 before closing.
