Why Losing the Warner Bros. Deal May Be the Best Outcome for Netflix Stock

Key Points

• Despite losing its bid to buy Warner Bros., Netflix likely put in its Q1 bottom as investors rallying behind it.
• From Warner Bros.'s deteriorating performance to a multi-billion-dollar termination payout, Netflix may have actually come out on top in the acquisition saga.
• The streaming company will re-center on organic growth, which has been the key to its past success.

After a protracted and public effort, streaming services giant Netflix NASDAQ: NFLX officially bowed out of its battle to acquire Warner Bros. Discovery NASDAQ: WBD in late February.

Many viewed the potential blockbuster deal as one that could further increase NFLX’s dominance in the entertainment industry. However, there are reasons to believe that losing the bidding war to Paramount Skydance NASDAQ: PSKY could leave the firm in better financial shape for the future.

In the aftermath of the failed WBD takeover bid, here is what current shareholders and prospective investors can expect from Netflix moving forward. 

Investors Gobbled up Netflix as Acquisition Chances Faded

Shares of Netflix went on a tear in late February as markets saw the firm’s chances of winning the Warner Bros. deal fall.

On Feb. 24, Warner Bros. said it had received Paramount Skydance’s revised offer, which ended up at $31 per share. Two days later, Netflix said it would not raise its offer. And on Feb. 27, Warner Bros. announced that Paramount Skydance would acquire it.

That proved to be a short-term catalyst for Netflix. In just four days, shares of NFLX rallied by 23%, clearly indicating that the market believed not acquiring Warner Bros. was the streaming stalwart’s best path forward.

Several factors played into this move in shares.

First, it's reasonable to consider the $72 billion in equity value Netflix agreed to pay as steep. Keep in mind that the rise in WBD shares occurred almost solely because of acquisition developments rather than significantly improved operational performance.

At the end of 2024, before acquisition rumors started ramping up, Warner Bros. market capitalization was just $26 billion, or just more than one-third of the equity value Netflix offered.

Meanwhile, Warner Bros. operational metrics deteriorated in 2025. Revenues fell by 5% on a constant currency basis, marking the company’s worst revenue decline in well over a decade. Adjusted earnings before interest, taxes, depreciation, and amortization declined by 3%, and free cash flow dropped 30%. Notably, adjusted earnings per share improved from a loss of $4.62 in 2024 to positive 29 cents in 2025. However, that was largely due to a massive change in non-cash impairment losses.

Warner Bros. took an enormous $9.6 billion impairment loss in 2024. Because it bit the bullet that year, impairment losses dropped to just $172 million in 2025. That did not reflect operational improvement, but rather a normalization from an outlier in 2024. Given this, it was fair to question whether it made sense for Netflix to pay more for a company that weakened financially throughout 2025.

Termination Fee and Yield Movements Provide Netflix a Windfall 

Netflix also achieved financial gains from removing its bid and may have dodged a bullet when it comes to financing the deal. Notably, Paramount paid Netflix the $2.8 billion termination fee required after the company pulled its bid. This figure is far from insignificant and is equal to around 30% of Netflix’s 2025 free cash flow of $9.46 billion.

Additionally, analysts expected Netflix to take on around $50 billion in new debt to finance the deal. This would have massively increased the firm’s debt from around $14.6 billion at the end of Q4 2025.

Furthermore, yields on corporate bonds have increased meaningfully, rising from around 4.7% to nearly 5.1% since Netflix first announced its offer. This means that Netflix’s interest payments on its new debt would likely have been materially higher than initially anticipated.

Netflix to Refocus on Organic Growth

Looking ahead, Netflix will work to find ways to drive organic growth and profitability improvements in its already strong business. Netflix has shown an ability to do this in the past. It improved its operating margin by a whopping 830 basis points from 2023 to 2025. Growth also came in at a solid 16% in both 2024 and 2025, recovering from 6% to 7% growth over the previous two years. Still, growth has been moving in a steep downward trajectory long-term as its platform gains more ubiquitous usage.

Netflix needs to find sustainable ways to prevent growth from trailing off much further. To that end, the company recently announced $1 to $2 price hikes across all its tiers—its second price hike in as many years. The company’s standard plan now costs $19.99, the highest or tied for the highest among popular streaming services. Those price points have also risen by a substantial 29% from $15.49 in 2023.

This raises questions around how much longer Netflix can rely on price increases to drive growth, making strong execution in live sports, ad-supported tiers, and international markets key to future success. Importantly, the firm expects ad revenue to double in 2026. And on March 25, Netflix further expanded its footprint in prime time sports by airing Major League Baseball's Opening Night. 

Analysts Eye 20%+ Gains, Long-Term Outlook Is More Uncertain

Analysts are bullish on NFLX going forward, with a consensus 12-month price target sitting near $115, implying almost 25% upside. Price targets updated after the company pulled its WBD bid are slightly higher, averaging around $117.

Shares remain down around 10% compared to when the firm first announced its intention to buy Warner Bros. But NFLX now trades at a forward price-to-earnings ratio near 30x, moderately below its three-year average near 35x.

Overall, Netflix shares don’t appear to be dramatically undervalued. However, the company does have levers it can pull to drive long-term gains. Still, its ability to continue delivering outperformance versus market indexes is debatable.