Netflix Inc. Investors were already skeptical about its $72 billion deal for Warner Bros. Discovery Inc. Now the threat of having to pay even more and potentially face a protracted regulatory fight is making matters worse.
TL;DR
- Netflix stock declined 3.4% following Paramount's bid and Trump's concerns about the Warner Bros. deal.
- The $72 billion Warner Bros. deal faces a protracted regulatory fight and potential price increase.
- Netflix shares have dropped over 20% since October 21st due to earnings and acquisition worries.
- Analysts cite substantial expense, regulatory hurdles, and growth concerns for Netflix's stock performance.
Netflix's stock concluded Monday's trading session with a decline of 3.4%, reaching its lowest point since mid-April. This downturn followed Paramount Skydance Corp.'s $108 billion hostile bid offer for the HBO proprietor, coupled with President Donald Trump's statement regarding the Netflix transaction “could be a problem.”. The company's shares have experienced a drop exceeding 20% since October 21st, a period marked by a disappointing third-quarter earnings report that amplified concerns about a potential acquisition of Warner Bros.
“A higher bid by Paramount makes it more likely that either Netflix has to increase its price or walk away,” said Uday Cheruvu, portfolio manager at Harding Loevner, which owns Netflix shares. Even if Netflix prevails, the acquisition is risky because it involves integrating a whole new organization and “the problems that brings,” Cheruvu said.
Following an early surge in 2025, Netflix's stock has faced challenges lately due to worries regarding its expansion prospects and the substantial investment in Warner Bros. The company's shares have dropped 28% since late June, positioning it as the seventh-worst performer within the Nasdaq 100 Index during the latter half of the year. What was initially a 50% gain in the first half of 2025 has now diminished to under 8%.
Netflix faces a lengthy Justice Department review of the deal. Co-Chief Executive Officer Ted Sarandos, who met with Trump at the White House recently to lobby for the deal, and fellow co-CEO Greg Peters told investors at a UBS conference in New York on Monday that they’re “extremely confident” that their deal with Warner Bros. Will be approved. Netflix agreed to pay Warner a $5.8 billion breakup fee, one of the largest ever, if the agreement falls apart or fails to gain regulatory approval.
On Sunday, Trump disrupted the proceedings, raising concerns about the antitrust implications of the merger. “It is a big market share,” he stated. “It could be a problem.”
The prospects for the agreement are made more complex by the participation of Trump's son-in-law, Jared Kushner, who is participating in the Paramount bid via his Affinity Partners investment fund.
A representative for Netflix didn’t respond to a request for comment.
Beyond the ambiguities of regulation, the purchase of Warner Bros. Signifies Netflix's most recent strategic redirection. The company, which historically avoided substantial acquisitions, has demonstrated an inclination to alter its approach lately to foster expansion, such as venturing into live programming and advertisements.
“What bothers me with Netflix is that they change their mind all the time,” said Vikram Rai, a portfolio manager and macro trader at First New York. “They keep trying to do everything.”
Rai sold the Netflix shares he owned in his personal account on Friday after the deal was announced and doesn’t hold the stock with funds he manages professionally. Rai said he has “PTSD” from the disastrous AOL-Time Warner deal, which was announced near the peak of the dot-com bubble in January 2000.
Rosenblatt Securities and Pivotal Research reduced their ratings on the streaming giant to a neutral equivalent from a buy on Monday, citing the substantial expense of Warner Bros., potential regulatory hurdles, and worries regarding Netflix's prospects for growth.
“We see an extended period of uncertainty and risks, balanced against a very small financial ROIC that clearly can’t be driving this deal,” Rosenblatt analyst Barton Crockett wrote in a research note, referring to return on invested capital.
Netflix's income growth is expected to decelerate over the coming two years, following an estimated 16% increase in 2025, based on information gathered by Bloomberg. Approximately two-thirds of the 59 financial experts monitored by Bloomberg who follow Netflix have recommended purchasing the stock. The equity currently has 16 neutral ratings and three recommendations to sell.
Even though optimists recognize that Netflix's stock will probably face challenges in the immediate future, they are wagering that the purchase, should it be finalized, will prove beneficial over an extended period.
“The stock has been in the penalty box, but this is a good deal for them,” said Conrad van Tienhoven, a portfolio manager at Riverpark Capital. “When the dust settles, people will realize it is getting a lot stronger from a content and content creation standpoint. It was already far and away the leader, and it just doubled down on its lead.”
