Netflix Shares Under Pressure Amid Record Acquisition Plans

Netflix US64110L1061

Strong quarterly performance from Netflix has been overshadowed by investor concerns over the company's ambitious acquisition strategy. The streaming giant's stock remains in a pronounced downtrend, pressured by its proposed all-cash purchase of Warner Bros. Discovery's streaming and studio assets for $82.7 billion. Since hitting a record high in late June 2025, the equity has shed approximately 36% of its value.

Financially, Netflix ended 2025 on a high note. Its fourth-quarter results demonstrated robust health, though they are being evaluated against the backdrop of the massive pending deal.

Fourth Quarter 2025 Financial Highlights:
* Revenue: $12.1 billion, an increase of 18% year-over-year, marking the strongest growth rate since early 2021.
* Global Paid Subscriptions: Exceeded 325 million.
* Operating Income: $2.96 billion, up 30% from the prior year.
* Operating Margin: 24.5%, an expansion of 2 percentage points.
* Earnings Per Share (EPS): $0.56, slightly above consensus estimates of $0.55.
* Advertising Revenue: More than doubled in 2025, surpassing $1.5 billion.

The company reported a cash position of $9.03 billion as of December 31, 2025, with non-GAAP free cash flow for Q4 reaching $1.87 billion.

The $82.7 Billion Warner Bros. Discovery Deal

On January 20, 2026, Netflix revised its offer for the Warner Bros. Discovery assets to a straight cash transaction, eliminating share price uncertainty for Warner Bros. Discovery shareholders. To help finance the deal, Netflix has suspended its share repurchase program.

The acquisition package includes the HBO Max streaming service and the Warner Bros. film studios. The transaction requires Warner Bros. Discovery to split into two publicly traded entities, with Discovery Global being spun off prior to completion.

Regulatory scrutiny is a key focus, compounded by a competing hostile bid from Paramount Skydance that adds further uncertainty. Despite this, Co-CEO Ted Sarandos expressed confidence in gaining approval, describing the proposed transaction as "pro-consumer, pro-innovation, and pro-employee."

Cautious Guidance for the Year Ahead

Netflix's 2026 outlook has contributed to investor unease. The company provided the following forecasts:
* Full-year revenue between $50.7 billion and $51.7 billion, implying growth of 12% to 14%.
* A target operating margin of 31.5%.
* First-quarter revenue of $12.16 billion, representing 15.3% growth.
* A Q1 operating margin of 32.1%.

While advertising revenue is projected to roughly double in 2026, management tempered expectations for near-term benefits from the Warner assets. A meaningful contribution to the advertising business is not anticipated before 2027.

Stock Performance and Analyst Sentiment

The market is currently prioritizing the risks of the acquisition over positive operational trends. Shares are trading near $86, well below their 52-week high of $134.12. Since Netflix's initial interest in the Warner assets became public in October 2025, over $100 billion in market capitalization has been erased. A 10-for-1 stock split executed in November 2025 failed to reverse the negative momentum.

Recent analyst action includes Argus Research lowering its price target from $141 to $110 while maintaining a "buy" rating. The stock currently trades at a price-to-earnings (P/E) ratio of approximately 34, with analysts forecasting EPS growth of 24% in 2026 and 22% in 2027.

Competitive Landscape and Strategic Shift

The streaming market is becoming increasingly competitive, with Disney and Amazon Prime Video applying significant pressure. Netflix's move to integrate Warner Bros. assets signals a strategic pivot toward consolidation after years of primarily organic growth.

Key engagement metrics remain stable or positive: total viewing time increased by 2% year-over-year, and viewing of brand-defining original content rose 9% in the second half of 2025. Going forward, the stock's trajectory will likely hinge on two critical factors: the outcome of the regulatory review process and the final structuring of the transaction amidst rival bids.