According to Nicole Kidman, Alone at the Multiplex, “Somehow, it feels good to be heartbroken in a place like this.”
Netflix(NASDAQ: NFLX ) Officially abstained from war Warner Bros. Discovery(NASDAQ: WBD ) Late last week. Paramount Skydance(NASDAQ: PSKY ) HBO raised its hostile bid for the parent company, and Netflix admitted that the price was too rich for blood. Both winners and losers rose on Friday. You don’t see that very often.
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If you are a subscriber of many of these streaming services, this is probably not good news. Netflix could use its scalability to lower prices, or at least bundle premium offerings at a discount. Paramount Skydance could take a similar route, but given its mounting debt and the joint venture’s struggles with digital profitability, it may not have the same wiggle room. Does anyone really pay for Paramount+ with all the free offers?
Image source: Getty Images.
As one of Netflix’s longest-serving retail investors — having owned a piece of mine since the fall of 2002, when it had a botched IPO — I couldn’t be happier. The market action on Netflix over the last few months says it all.
Going back to when Netflix first entered a bidding war for Warner Bros. Discovery, in the weeks before the $72 billion deal (or $83 billion once you count assumed debt) in early December, Netflix stock fell by more than $100 billion in market cap at one point. In short, the market thought the joint venture was worth less than Netflix on its own.
In the last four trading days of the previous week, the bullish momentum returned. Paramount Skydance presented an excellent proposal. Netflix threw in the towel. Netflix found success in failure.
In less than a week, the market has warmed to Netflix as a swing unit. Netflix now values itself more than it did a week ago, when it was the one wearing the Warner Bros. Discovery engagement ring. Throw in the $2.8 billion it’s now raising from Warner Bros. Discovery to close the deal, and that’s a cherry on the sundae.
Warner Bros. Discovery Studios and content assets will look great under Netflix’s hands. No one comes close to generating $45 billion in annual revenue over 325 million paying customers worldwide. Who needs game of thrones When are you already a content king?
Media stock class actions will get bigger, but at what cost? Netflix had already started politicking as the winning bid, and it had to put it all together before considering regulatory hurdles.
Losing Warner Bros. Discovery — and overpaying Paramount Skydance — is the best outcome. This would make it much easier for Netflix to make a play for smaller content deals after Skydense scores back-and-forth deals. Hopefully, Netflix has also learned that it doesn’t need to make any deals to please the market.
Netflix itself is doing well. Revenue growth accelerated for the third consecutive year. Stickiness is growing, and it can continue to bid for live sports deals without ruffling feathers or attracting regulatory scrutiny. It will remain the best landing spot for any new piece of content that becomes available. The stock’s 27% rise in the last four trading days is no consolation prize. It’s a confirmation that sometimes you can win more by losing.
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Rick Manarez holds positions at Netflix. Motley Fool on Netflix and Warner Bros. Discovery has and offers positions. Motley Fool has a disclosure policy.
Thanks to Go Away, Netflix was originally published by The Motley Fool
