Streaming leader shares Netflix(NASDAQ: NFLX ) They’ve been rising recently, and for good reason: Management shied away from big, risky acquisitions.
When the company officially abandoned its pursuit Warner Bros. DiscoveryStudio assets — a deal previously valued at $82.7 billion — Stocks rise Wall Street cheered the move, seeing it as a clear sign of capital discipline.
Will AI create the world’s first trillionaire? Our team just published a report on a little-known company, called “Essential Dependency” that provides critical technology to both Nvidia and Intel. Continue »
Exiting means avoiding complex mergers and avoiding large financial commitments. More importantly, it meant Netflix could immediately restart its share buyback program, backed by $9.5 billion in free cash flow by 2025..
Combined with the company’s strong underlying business performance, the aborted deal strengthened Bell’s case.
But is the stock a buy today?
Image source: Motley Fool.
It’s easy to celebrate Netflix for walking away from an $82.7 billion megadeal. But investors should ask a more fundamental question: Why was the company considering a deal of this scale in the first place?
The answer points directly to the stock’s biggest risk: intense competition.
The fact that the company is even considering the Warner Bros. deal suggests just how important Netflix believes it is to continue spending heavily on content to defend its turf.
And Netflix has always been open about this environment.
“We have long said that we compete with all the activities that people engage in during their leisure time, including but not limited to other streaming services, linear TV, social media, open content platforms, video gaming, and concerts, just to name a few,” Netflix explained during the fourth quarter shareholder letter. “As a result, the entertainment business is always in fierce competition with strong players such as US media companies, large technology companies, and local broadcasters and media companies outside the US.”
It’s competing for the absolute share of screen time against everything else that consumers care about, including scrolling through social media and viewing user-generated content. the alphabetYouTube.
In a landscape where attention is increasingly fragmented, acquiring and retaining customers requires the constant, expensive beat of sprawling international shops. An extensive library of content is not a luxury; It is a basic requirement for survival. And Netflix’s flirtation with Warner Bros. studio assets shows just how hungry the company is for the intellectual property created to feed its machine..
In fact, in the same press release that announced Netflix’s decision to leave Warner Bros., the company said it plans to invest $20 billion in movies and series this year.
With the stock’s recent rally, value leaves very little cushion if that competitive pressure weighs on growth..
As of this writing, Netflix is trading at A A price-to-earnings ratio of around 37. At this rate, investors today aren’t just paying for a strong business; They set prices on the assumption that Netflix will continue to compound its revenue at a double-digit rate while simultaneously expanding profit margins for years to come..
Of course, Netflix is currently delivering on its high expectations. The company expects its operating margin to expand from 29.5% in 2025 to 31.5% in 2026.
There’s also a secondary catalyst to consider: the company’s fast-growing advertising business. Management noted that advertising revenue is expected to grow more than 150% to $1.5 billion in 2025, and the company expects it to nearly double in 2026. While promising, this segment is still a relatively small portion of total revenue; Netflix’s total 2025 revenue was $45.2 billion.
And there are already signs that overall growth could moderate. Management’s guidance for the first quarter of 2026 calls for revenue of $12.2 billion. That’s 15.3% year-over-year growth — a clear decline from the 17.6% peak growth it posted in the fourth quarter. And, for the full year, the company is guiding for revenue growth of 12% to 14% — or 11% to 13% in constant currency alone.
If competition forces Netflix to keep content costs high, or if pricing power softens as consumers consolidate their streaming subscriptions, the price-to-revenue multiple the market is willing to charge the company may shrink over time..
Ultimately, Netflix is an exceptional business with a highly disciplined management team. The decision to pull out of the Warner Bros. deal and continue to repurchase shares is probably the right one.
But given the intense competition for consumers’ attention and the high expectations built into the stock’s current value, I think Netflix is more of a bargain than a buy right now..
Before you buy stock in Netflix, consider this:
of the Motley Fool Stock Advisor The analyst team identified only what they believed 10 best stocks For investors to buy now… and Netflix was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix This list was created on December 17, 2004 … If you invested $1,000 at the time of our recommendation, You will have $514,000or when Nvidia This list was created on April 15, 2005 … If you invested $1,000 at the time of our recommendation, You will have $1,105,029!*
Now, this is significant Stock consultant The total average return is 930% – Outperformed the market by 187% for the S&P 500. Don’t miss the latest Top 10 list, available with Stock consultantand join an investment community created by individual investors for individual investors.
View 10 Stocks »
* Stock Advisor returns to March 14, 2026.
Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions and offers on Alphabet, Netflix, and Warner Bros. Discovery. Motley Fool has a disclosure policy.
Has Netflix stock risen since it bought Warner Bros.? Originally published by Motley Fool
