Netflix stock: are markets mispricing the Warner deal impact?

Core Viewpoint - Netflix's stock has experienced a significant decline of approximately 27% since its peak in late June 2025, primarily following the announcement of its $72 billion acquisition of Warner Bros. Discovery's studios and streaming division [1][2]. Stock Performance and Market Reaction - Following the acquisition announcement on December 5, Netflix shares fell about 3%, while Warner Bros. Discovery's stock rose by 3% [2]. - By December 8, as Paramount launched a $108 billion counterbid, Netflix's stock dropped an additional 3.4%, reaching its lowest level since April [2]. - Over the next month, Netflix's stock declined by another 13% amid growing regulatory uncertainty, particularly after President Trump raised concerns about antitrust implications [3]. Acquisition Details and Financial Projections - The acquisition, valued at $82.7 billion, involves Netflix paying $23.25 in cash and $4.50 in stock per Warner Bros. Discovery share, while also assuming Warner Bros.' significant debt [3]. - Netflix anticipates annual cost synergies of $2 billion to $3 billion by the third year post-acquisition, although analysts express skepticism regarding whether these savings justify the acquisition cost at current valuation multiples [4]. Analyst Sentiment - Wall Street's consensus has turned cautious, with several firms downgrading Netflix's stock rating and significantly reducing price targets. For instance, Rosenblatt Securities downgraded from Buy to Neutral, lowering the target from $152 to $105, a 31% reduction [5]. - Pivotal Research also downgraded its rating from Buy to Hold, cutting its target from $160 to $105, citing an extended period of uncertainty and risks [5]. - CFRA downgraded Netflix from Strong Buy to Hold, reducing its price target from $130 to $100 [5]. Counterpoints and Strategic Considerations - Canaccord Genuity maintained a Buy rating, suggesting that Warner Bros.' iconic franchises and production assets could enhance Netflix's competitive position once integration is complete [6]. - The key concern among analysts revolves around whether Netflix's content library, cost synergies, and scale will be sufficient to manage current debt levels, or if regulatory challenges and integration complexities will erode shareholder value in the next 18 to 24 months [7]. - The regulatory approval process remains uncertain, with deal completion not expected before Q3 2026, and breakup fees of $5.8 billion highlighting execution risks [7]. Market Sentiment and Future Outlook - The market's pessimism reflects real risks, but if Netflix successfully navigates regulatory approvals and integration, the acquisition could lead to increased subscribers and revenue [8]. - Currently, investors are pricing in downside risks rather than potential upside, a perspective that may change as management demonstrates competence in achieving integration milestones [8].