Is Netflix's Warner Bros. Acquisition a Mistake?

Group 1 - Netflix's stock has declined 20% since the announcement of its acquisition of Warner Bros. Discovery (WBD) on December 5, including a drop of approximately 5% after hours following the earnings report [1][2] - The acquisition is expected to overshadow Netflix's stock performance for the remainder of the year, particularly due to uncertainties regarding regulatory approval and competition from Paramount Skydance [2] - Netflix's management initially did not plan to pursue WBD but changed their stance after evaluating the opportunity, indicating a shift in strategy [3] Group 2 - WBD possesses an attractive content library and theatrical business, but has struggled as a business due to a significant debt burden and the competitive nature of the entertainment industry [4] - Netflix's engagement report indicated only a 2% increase in hours watched on the platform in the second half of the year, raising questions about the motivations behind the acquisition [5] - Historically, Netflix has avoided acquisitions, focusing on original programming, and the WBD deal raises questions about the management of the HBOMax platform and the financial implications of a $72 billion cash payment and $10.7 billion in net debt [6][7] Group 3 - The cash offer for WBD represents nearly six times Netflix's current net income and over four years of its content spending, highlighting the financial risk involved [7] - While WBD is considered an attractive asset, there is skepticism about whether the acquisition price is justified, and Netflix must demonstrate the value of this deal to investors [10]