Netflix (NFLX) shocked the leisure business and the inventory market with its blockbuster bid to amass Warner Bros. Discovery’s (WBD) premium property, together with the long-lasting Warner Bros. studios, HBO, HBO Max, and an unlimited library of franchises like Harry Potter, DC Universe, and Recreation of Thrones.
Introduced on Dec. 5, the deal values the property at roughly $72 billion in fairness (with an enterprise worth of $82.7 billion), structured as a mixture of money and inventory. The transfer follows a aggressive bidding course of involving rivals like Paramount Skydance (PSKY) and Comcast (CMCSA). Whereas the acquisition guarantees to create a streaming powerhouse, it has sparked debate amongst traders about dangers, together with debt, integration challenges, and regulatory scrutiny. The query for traders is, must you promote NFLX inventory earlier than it wins the bid?
The market’s response to the Netflix-Warner Bros. deal has been decidedly destructive for NFLX shareholders, reflecting considerations over the monetary and strategic implications of such a large transaction. Though Netflix says the deal is all about “development,” traders seem cautious of Netflix’s shift from its conventional natural development mannequin to a large-scale acquisition, particularly one involving Hollywood property.
NFLX inventory closed at $93.50 per share on Tuesday, Dec. 23, down 6.7% from the place it traded earlier than the deal information. Regardless of the pullback, the inventory trades at 10x gross sales and 37x ahead earnings, a premium a number of that underscores excessive development expectations but in addition signifies it stays susceptible to additional setbacks.
The deal’s construction provides to the concerns. Netflix can pay $23.25 in money and $4.50 in inventory per WBD share (topic to a collar), requiring it to empty its money reserves and doubtlessly elevate extra capital by means of debt or issuing fairness. This comes at a time when rates of interest stay elevated, growing borrowing prices and leverage dangers.
Integration poses challenges, with Netflix’s data-driven, agile tradition contrasting with Warner Bros.’ conventional Hollywood operations. It raises fears of execution dangers much like previous media mergers that destroyed worth. Fortuitously, the deal excludes WBD’s declining linear TV property (like CNN and TNT), which Warner Bros. will spin off as Discovery International in late 2026 earlier than closing.
