Up 826% in 10 Years, Is Netflix About to Make an $83 Billion Mistake?

Core Viewpoint - Netflix is proposing an all-cash acquisition of certain assets from Warner Bros. Discovery for $27.75 per share, totaling an equity value of $72 billion, which raises concerns about whether this $83 billion deal is a mistake for the company [1][2]. Group 1: Proposed Transaction Details - The proposed deal involves Netflix using $20 billion in cash and taking on $52 billion in debt, leading to an enterprise value of $82.7 billion when including Warner Bros. Discovery's net debt [1]. - Netflix's current market capitalization is approximately $357 billion, making this acquisition significantly larger than its historical growth strategy, which has primarily focused on organic expansion [2]. Group 2: Industry Context - Other major media companies have made large acquisitions, such as Disney's $71 billion purchase of 21st Century Fox in 2019 and Amazon's $8.5 billion acquisition of MGM in 2022, highlighting the scale of Netflix's proposed transaction [2]. - Netflix has been cautious about entering the live sports market, a strategy that competitors like Amazon and Apple are aggressively pursuing [3]. Group 3: Financial Projections and Market Reaction - Netflix aims to achieve $2 billion to $3 billion in annual cost savings by the third year after the deal closes, with expectations that the acquisition will be accretive to earnings per share by the second year [5]. - Since the announcement of the deal, Netflix's shares have declined by 16%, indicating a negative market sentiment regarding the acquisition [7].