Can WBD's $82.7 Billion Takeover Push NFLX Stock Higher in 2026?

Netflix NFLX has positioned itself at the center of entertainment industry transformation with its announced acquisition of Warner Bros. Discovery's WBD studio and streaming assets for an enterprise value of approximately $82.7 billion. The cash-and-stock transaction, announced on Dec. 5, 2025, would unite Netflix's global streaming platform with Warner Bros. Discovery's century-long legacy of storytelling, including franchises such as Harry Potter, Game of Thrones, and the DC Universe. However, the path forward presents both significant opportunities and substantial risks that merit careful investor consideration.

Netflix’s third-quarter 2025 results demonstrated solid operational momentum despite missing earnings expectations. Netflix reported revenues of $11.51 billion, reflecting 17% year-over-year growth. However, earnings per share of $5.87 missed the consensus mark by 0.12%, primarily due to a one-time Brazilian tax charge of $619 million. Management emphasized that this tax matter should not materially impact future results, maintaining confidence in the underlying business strength.

The acquisition represents a strategic pivot toward content ownership and theatrical capabilities that Netflix has historically lacked. By absorbing Warner Bros. Discovery's world-class studios, HBO, and HBO Max, Netflix aims to expand its content library significantly while gaining enhanced production capacity. The company expects to realize $2 billion to $3 billion in annual cost savings by the third year post-closing, with the transaction anticipated to be accretive to earnings per share by year two. Netflix plans to maintain Warner Bros. Discovery's current operations, including theatrical releases, suggesting a hybrid distribution strategy that could diversify revenue streams beyond pure streaming.

However, substantial headwinds cloud this optimistic scenario. President Donald Trump has expressed concerns about potential competition problems, noting that Netflix already commands a significant market share that would increase considerably if the deal proceeds. The combined entity could potentially exceed the 30% market share threshold in streaming, though Netflix disputes this figure by arguing that platforms like YouTube should be included in competitive analysis. The acquisition faces regulatory scrutiny from both U.S. and European authorities, with the Department of Justice expected to conduct an extensive review. 

The financial burden of the acquisition also presents execution risks. Netflix will assume significant debt to complete this transaction, raising its leverage at a time when interest rates remain elevated. The integration of two massive entertainment operations carries inherent complexity, and the historical failure rate of large media mergers suggests caution. The company must simultaneously manage its core streaming business while absorbing Warner Bros. Discovery's operations, a challenge that could strain management attention and resources.

Despite these concerns, Netflix's fundamental business remains robust. The company guided for fourth-quarter 2025 revenues of approximately $11.96 billion with an operating margin of 23.9%. For full-year 2025, Netflix projects revenues between $43.5 billion and $44.5 billion, representing 16% growth, though operating margin guidance was reduced to 29% from the previous 30% target due to the Brazilian tax issue.

The Zacks Consensus Estimate for 2025 earnings is pegged at $2.53 per share, moving south by 3.1% over the past 60 days.

Netflix’s advertising business continues scaling rapidly, with management confirming it is on track to more than double ad revenues in 2025 to approximately $2.9 billion. Content spending of around $18 billion demonstrates Netflix's continued commitment to original programming, with successful releases like KPop Demon Hunters generating record viewership.

Netflix, Inc. Price and Consensus

Netflix, Inc. price-consensus-chart | Netflix, Inc. Quote

Stock Performance, Competitive Landscape and Valuation Analysis

Current valuation metrics position Netflix at a significant premium to both traditional media peers and some technology comparators, with a forward price-to-earnings ratio of 31.8 times relative to the broader Zacks Broadcast Radio and Television industry's average of 25.77 times.

NFLX’s P/E F12M Ratio Depicts Stretched Valuation

The competitive landscape has intensified as rivals Amazon AMZN, Disney DIS and Apple, among others, invest heavily in content and technology. Amazon Prime Video continues expanding its sports programming portfolio, securing exclusive NFL Thursday Night Football rights and adding NBA games to complement its extensive content library, while Amazon Prime Video leverages its parent company's retail ecosystem for commerce integration and Amazon Prime Video recently unveiled AI-powered content discovery features similar to Netflix's initiatives. For the most recent quarter (fourth-quarter fiscal 2025, ended Sept. 27, 2025), the combined Disney+ and Hulu streaming services (part of Disney's Direct-to-Consumer segment) reported $6.2 billion in revenues and achieved an operating income of $352 million. The combined subscriber count reached 196 million, demonstrating Disney's strength in its unmatched portfolio of franchises, including Marvel, Star Wars, and Pixar properties that provide built-in audience loyalty. Apple TV+ pursues a quality-over-quantity strategy with critically acclaimed content and focuses on premium storytelling that garners awards recognition.

Netflix shares have lost 18.1% in the past six-month period. This performance stands in stark contrast to rival platforms, with Apple seeing shares rise 38.4% during the same period, while Disney declined 9% and Amazon advanced just 5.8%. The Zacks Consumer Discretionary sector and the S&P 500 also outperformed Netflix.

NFLX’s 6-Month Performance

Investment Recommendation

Given the significant uncertainty surrounding regulatory approval, integration execution, and elevated valuation, investors should adopt a cautious stance on Netflix shares. The Warner Bros. acquisition presents transformational potential but introduces substantial near-term risks, including antitrust challenges, debt burden, and execution complexity. The recommendation is to hold existing positions or wait for better entry points in the near term, given the premium valuation and regulatory uncertainty surrounding the transformational but risky Warner Bros. Discovery acquisition. NFLX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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