Netflix Drops Its Deal to Acquire Warner Bros.: What Lies Ahead?

Netflix NFLX stock surged nearly 10% on Feb. 26, 2026, after the streaming giant formally declined to raise its bid for Warner Bros. Discovery's WBD studio and streaming assets — a decision that ended what would have been the company's largest-ever acquisition and handed Paramount Skydance PSKY a clear path to claim the Hollywood legacy studio.

Netflix had originally struck a deal in December 2025 to acquire Warner Bros. Discovery's studios and streaming assets, but declined to raise its offer after WBD's board determined that Paramount Skydance's revised proposal constituted a "Superior Proposal" under the existing merger agreement. Paramount had raised its all-cash bid to $31 per share compared with Netflix's offer of $27.75 per share for WBD's studio and streaming business only. Rather than stretching its balance sheet to match the revised terms, Netflix chose financial discipline over scale.

The decision to walk away appears consistent with Netflix's underlying financial position. In fourth-quarter 2025, Netflix grew full-year revenues 16% to $45 billion and expanded its operating margin to 29.5%, up from 26.7% in 2024. For full-year 2026, Netflix is guiding for revenues of $50.7 billion to $51.7 billion, suggesting 12% to 14% year-over-year growth, with a targeted operating margin of 31.5%.

Looking ahead, Netflix has signaled a return to its organic growth playbook. The company plans to invest approximately $20 billion in content in 2026 and will resume its share repurchase program consistent with its capital allocation policy. Advertising revenues, which crossed $1.5 billion in 2025 — growing more than 2.5-fold over 2024 — are projected to roughly double again in 2026. With 325 million paid subscribers and expanding ad monetization, Netflix's path forward relies on compounding its existing strengths rather than integrating a legacy Hollywood empire.

Streaming Profitability in Focus for Rivals

As Netflix doubles down on organic growth, its rivals present a diverging financial picture. Paramount Skydance ended fourth-quarter 2025 with 78.9 million Paramount+ subscribers, up 4% year over year, with a 10% rise in direct-to-consumer revenues. Yet Paramount Skydance posted a net loss of $573 million in fourth-quarter 2025, with full-year 2025 revenues declining 2% to $29.03 billion and adjusted OIBDA collapsing 61% to $1.31 billion. Paramount Skydance is targeting $30 billion in revenues and $3.8 billion in adjusted EBITDA for fiscal 2026. Disney DIS, by contrast, is operating from a position of greater scale and improving streaming profitability. Disney's streaming revenues grew 11% in first-quarter fiscal 2026, with streaming operating income surging 72% to $450 million, and Disney is targeting a 10% SVOD operating margin for fiscal 2026. While Paramount Skydance is banking on the Warner Bros. acquisition to accelerate its streaming ambitions, Disney's profitability trajectory gives Disney a structural edge that Paramount Skydance has yet to replicate.

NFLX’s Price Performance, Valuation & Estimates

Shares of Netflix have plunged 21.8% in the past six-month period compared with the Zacks Broadcast Radio and Television industry’s decline of 11.9%.

NFLX’s 6-Month Price Performance

From a valuation standpoint, Netflix appears overvalued, trading at a forward 12-month price-to-sales ratio of 7.78X compared with the broader Zacks Broadcast Radio and Television industry's forward sales multiple of 4.04X. NFLX carries a Value Score of D.

NFLX’s Valuation

The Zacks Consensus Estimate for NFLX’s 2026 revenues is pegged at $51.19 billion, suggesting 13.3% year-over-year growth. The consensus mark for 2026 earnings is pegged at $3.12 per share, having moved south by 0.3% over the past 30 days. This indicates a 23.32% increase from the previous year.

Netflix, Inc. Price and Consensus

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

NFLX stock 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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