Key Points
Netflix walked away from its big to buy Warner Bros. Discovery after being outbid by Paramount Skydance.
An analyst says the deal is a "win-win-win" and projects a 25% gain in Netflix's stock price.
Shares of Netflix and Paramount were both up on Friday.
It takes a lot of discipline to choose to walk away from a bad deal -- whether you're buying a car, a house, or a shiny new trinket. You can feel it in your hands and imagine how cool it would be to have it, but then reality hits, and the rational side of your brain realizes that it's not worth the money.
That's where Netflix(NASDAQ: NFLX) is today. The streaming service walked away from its effort to acquire Warner Bros. Discovery(NASDAQ: WBD) after realizing that the bidding war with Paramount Skydance had gotten out of hand (NASDAQ: PSKY).
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Netflix had a deal to buy Warner Bros. for $27.75 per share, but was topped this week by Paramount's $31-per-share cash bid. The deal covers all of Warner Bros.' businesses, including CNN, TBS, and TNT.
Warner Bros. gave Netflix a chance to increase its $82.7 billion proposal, but Netflix walked away from the deal on Thursday night -- much to the delight of shareholders. Netflix stock jumped more than 9% on Friday.
"The transaction we negotiated would have created shareholder value with a clear path to regulatory approval," Netflix co-CEOs Ted Sarandos and Greg Peters said in a statement. "However, we've always been disciplined, and at the price required to match Paramount Skydance's latest offer, the deal is no longer financially attractive, so we are declining to match the Paramount Skydance bid."
Image source: Netflix
What happens now with Netflix?
While I understand if there's disappointment in Netflix's boardroom over the company's failure to acquire Warner Bros., remember that this streaming company is doing just fine without CNN and the rest of Warner Bros.'s catalogue. Its fourth-quarter revenue of $12.05 billion was up 17.6% year over year, and net income of $2.41 billion was up 29% year over year.
Bernstein analyst Laurent Yoon reiterated his "Outperform" rating on Netflix stock and set a price target of $115, representing a 25% gain from its current price. "Netflix remain(s) disciplined allocators of capital -- a defining feature of their success. We believe Netflix's decision to walk creates a win-win-win outcome."
Netflix can now devote spending toward other acquisition targets or in developing its own content, Yoon said. "Engagement concerns will persist as platforms like YouTube take an increasing share of viewing time. But as the fourth quarter 2025 reminded us, better content drives more engagement, and Netflix is once again ramping its content spend to address the issue."
What happens with Paramount Skydance?
Paramount was already a major media player, and it just got stronger. The company will own dozens of cable networks, two major news brands (CBS and CNN), streaming services HBO and Paramount+, and movie studios Paramount Pictures and Warner Bros. Pictures. Paramount CEO David Ellison, whose bid was backed by his billionaire father Larry Ellison, the co-founder and chief technology officer of Oracle.
The deal would have to be approved by federal regulators before it's finalized, and Paramount is widely expected to cut staff. Warner Bros. management had previously said that a deal with Paramount could cause "more substantial losses of employees and talent" in overlapping business units.
But the stock market doesn't appear worried. Paramount Skydance stock was up 17% in late morning trading on Friday.
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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix, Oracle, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
