Shares look a lot cheaper following a recent selloff, and they are well-positioned to rally however the takeover battle shakes out.
Netflix stock has gone from fairy tale to fiasco this year—but plenty of great dramas give their hero a third-act redemption arc.
Shares are on their worst six-day run since July 2023, tumbling 13% amid concerns about how the video streamer will pay for its potential acquisition of Warner Bros. Discovery.
That has taken the shine off a rally from earlier this year. Netflix stock is now up 8.5% in 2025 and trading at its lowest level since mid-April, according to Dow Jones Market Data. Shares have fallen 17% since Barron’s recommended buying them in May.
Savvy investors should be on the edge of their seats. Shares look a lot cheaper after the recent selloff, and they are well-positioned to rally no matter how the Warner Bros. bidding war plays out.
It has certainly been a noisy few days. Following months of speculation, Netflix struck a deal on Friday to buy the streaming and studios businesses from Warner Bros. for $27.75 a share, with cable being spun out to investors. That was followed by Paramount Skydance going direct to investors with a hostile bid to buy all of Warner Discovery for $30 a share. Paramount is arguing that its offer is a better deal for shareholders, and more likely to be approved by regulators. President Donald Trump has already voiced concerns that a merger with Warner Bros. “could be a problem” because it would give Netflix a “very big market share.”
Netflix stock took a double hit. Shares dropped 2.9% on Friday, then another 3.4% on Monday. Judging by those moves, a messy takeover battle is the last thing the streamer needs.
Investors’ main worries are that Netflix is overpaying for Warner Bros., and that the process to get the deal done could drag on well into 2026.
Pivotal Research Group analyst Jeffrey Wlodarczak said on Monday that the “extremely expensive” deal was “an $83 billion admission of long-term headwinds,” including the threat posed by short-form video apps like TikTok. Wlodarczak, who at one point earlier this year was the stock’s biggest bull, downgraded Netflix to Hold from Buy, and cut his price target to $105 from $160.
There were always going to be naysayers, given that Netflix is taking on about $50 billion of new debt to fund the acquisition of a company that struggles to turn a profit.
But that is a shortsighted view. Morgan Stanley analyst Benjamin Swinburne, who rates Netflix at Overweight with a $150 price target, said on Friday that the deal offered “compelling risk/reward.” He expects the deal to hit earnings by just 4 cents a share in 2027, then boost the streamer’s profit thereafter.
When Barron’s named Netflix as a stock pick, we cited the success of a “flywheel” model where more subscribers meant more money to spend on content, which in turn attracts even more users. Buying Warner Bros. would add beloved characters like Harry Potter, Superman, and Tony Soprano to Netflix’s vast library of content, helping extend the cycle of growth that has transformed the company from a DVD-by-mail retailer into a tech giant. Swinburne forecasts that Netflix’s margin will rise to 40% by the end of 2028, up from 27% last year.
The stock will still be worth a look if the deal doesn’t get done. This is a make-or-break moment for Paramount, which has little chance of breaking into the big time as a streamer without Warner Bros.’ intellectual property. For Netflix, the stakes are much lower.
Netflix probably sees buying Warner Bros. as an opportunity to kill off the threat posed by Paramount and add to its own content library, rather than a “must-have,” MoffettNathanson analyst Robert Fishman said in a research note, adding that the streamer “still has a strong standalone growth trajectory” if it can’t get the deal done. Another growth driver is the company’s expansion into live sports, with coming events including next weekend’s boxing match between influencer Jake Paul and former heavyweight champion Anthony Joshua.
The stock’s recent wobble also ought to ease any concerns investors had about its lofty valuation. Shares now fetch about 30 times 2026 earnings, a bargain compared with the 43-times multiple they were trading at back in May. Executives are targeting a $1 trillion valuation by the end of 2030, up from $442 billion as of Wednesday. That looks doable if Netflix can execute the margin growth Morgan Stanley’s Swinburne is forecasting.
The Warner Bros. deal may be a source of uncertainty, but that shouldn’t overshadow such a strong overall growth story. Netflix stock is still a buy, despite this latest plot twist.
Jermaine Filmore 