Netflix Stock Just Keeps Falling. Is It Finally a Buy?

Core Viewpoint - Netflix's stock has declined by 17% over the past month due to a significant and risky strategic acquisition, leading investors to reevaluate the company's valuation [1] Acquisition Details - In early December, Netflix announced a deal to acquire Warner Bros.' studio and streaming assets, valuing the assets at approximately $72 billion in equity and $82.7 billion in enterprise value [2] - The acquisition is complex and contingent on Warner Bros. Discovery completing a separation of its Global Networks business, expected by Q3 2026 [6] Investor Sentiment - Investors are cautious about the deal due to its complexity and the uncertainty surrounding its closure, which Netflix anticipates will take 12 to 18 months [3][6] - Competing bidders have emerged, adding to the uncertainty and investor caution [7] Operational Complexity - Netflix plans to maintain Warner Bros.' current operations, which will increase operational complexity [8] - The company projects annual cost savings of $2 billion to $3 billion by the third year and expects the acquisition to be accretive to GAAP earnings per share by the second year [8] Business Performance - Despite the acquisition news, Netflix's third-quarter revenue grew by 17% year over year, with expectations for continued growth into Q4 [10] - The advertising business is also on track to more than double its revenue by 2025, indicating strong growth potential [11] Content Success - Netflix's "Stranger Things" has shown strong performance, with seasons 1 through 4 attracting over 1.2 billion viewers, and season 5 volume 1 garnering nearly 103 million views in just four weeks [12] Valuation Concerns - Netflix's stock is considered expensive, with a price-to-earnings ratio of 38 and a forward price-to-earnings ratio of 29, necessitating continued rapid growth [15]