Netflix Stock Drops 35%+ After Q4 as WBD Deal Risk Rises

Key Points

• Netflix shares are in the midst of a huge drawdown that began in the middle of 2025.
• The company's latest earnings didn't provide a respite, sending shares even lower.
• With valuation multiples near an over two-year low, and analysts eyeing upside, is NFLX poised for a big recovery?

Entertainment giant Netflix NASDAQ: NFLX just reported its much-anticipated Q4 and full-year 2025 financial results. The stock closed down approximately 3% on Jan. 21 in reaction, the latest sign of souring sentiment around the once-loved name.

Since hitting an all-time split-adjusted high near $134 on June 30, 2025, the stock has been on a steep downward trajectory. (Note that Netflix performed a ten-for-one stock split in November, moving its share price from well over $1,100 to the $110 range). Overall, shares are down approximately 37% from their mid-2025 peak.

The company has given investors a lot to think about. With growth expected to moderate and uncertainty surrounding its Warner Bros. Discovery NASDAQ: WBD acquisition, many market participants are running for the hills. Now, the stock trades at its lowest forward price to earnings (P/E) ratio in over two years.

Given the circumstances, should investors exercise caution around Netflix? Or is this an opportunity to capitalize on the stock’s precipitous decline? 

Netflix Hits Its Marks in Q4, But Signals Growth Slowdown

In its latest quarter, Netflix posted solid results, but only beat Wall Street forecasts by a slight margin.

Sales came in at $12.05 billion, an increase of 18%. This narrowly exceeded expectations of $11.97 billion. Adjusted earnings per share (EPS) was 56 cents. This equated to a split-adjusted increase of over 30% and beat estimates by 1 cent.

In 2026, Netflix guided for full-year sales of $51.2 billion at the midpoint, or a growth rate of around 13%. This would be a notable deceleration over the company’s full-year 2025 growth rate near 16%. The company also expects to generate free cash flow (FCF) of roughly $11 billion, or approximately 16% growth.

If FCF increases near or slightly above this rate over many years, it could justify the stock’s current valuation. However, as streaming becomes more competitive and less novel, accelerating growth organically may prove difficult.

Thus, the company’s planned acquisition of Warner Bros. will play a huge role in Netflix’s path forward as it looks to convert new assets into higher sales and profits.

WBD Deal: Netflix’s Big Splash Still Has Big Question Marks

Netflix is positioning the Warner Bros. deal as exactly what the stock needs: a growth accelerator. During Netflix’s earnings call, CEO Ted Sarandos said, “We're working really hard to close the acquisition of Warner Bros. Studios and HBO, which we see as a strategic accelerant."

Last quarter, these WBD segments generated around $5.28 billion in revenue and $1 billion in adjusted EBITDA. Netflix could clearly get a strong boost to its EBITDA, which averaged around $3.4 billion over the last four quarters, through the deal. Furthermore, integrating WBD’s content and production capabilities could significantly boost engagement and subscribers, potentially supporting higher long-term growth.

However, the company is also paying a hefty price, with the deal valued at $82.7 billion. Netflix also just made its WBD offer all-cash. This increases the financial strain the deal will put on the company, as WBD shareholders won’t receive any Netflix stock as compensation. Additionally, Netflix said it would suspend share buybacks to help finance the acquisition. This removes a key EPS tailwind, as the firm repurchased nearly $9.2 billion in stock in 2025.

Still, the biggest uncertainty is whether Netflix will actually acquire WBD. The deal looks poised to face serious antitrust scrutiny, and regulatory approval is far from guaranteed. Additionally, there is a considerable chance that Paramount Skydance NASDAQ: PSKY raises its offer beyond the current $30 per share, which could lead to Netflix ultimately losing WBD.

Analysts Eye +35% Gains, But Uncertainty Shrouds NFLX

The consensus price target on Netflix currently sits near $121.

This figure implies big-time upside potential of 41%. However, MarketBeat tracked many analysts who updated their price targets on Jan. 21, reflecting new forecasts based on the firm's earnings release.

Overall, price targets released on Jan. 21 averaged around $117. This number implies slightly less, but still very strong upside potential of 38%.

Though these price targets look strong, it seems that the market is wary of Netflix, probably due to uncertainty around its acquisition and future earnings. While the near-term future seems sketchy, the stock could be too cheap to ignore.

The stock’s forward P/E ratio near 27x is its lowest since October 2023, suggesting that the stock is currently trading at a discount. 

If the firm successfully closes and integrates WBD, the long-term benefits could be very significant. Overall, these factors skew the outlook on Netflix shares to the upside.