Key Points
Netflix investors appear relieved that the streaming giant isn't making a massive acquisition.
The company had been in a bidding war to buy Warner Bros., but it recently backed away from those efforts.
It still plans to invest in expanding its content, but another big acquisition may not be looming.
Netflix(NASDAQ: NFLX) has been soaring recently after it backed off its efforts to acquire Warner Bros., giving way to Paramount Skydance, ending a bidding war that had spanned multiple months. Netflix investors appeared relieved with the news that the $82.7 billion acquisition will not go through.
The streaming stock has now gone from being in the negative for the year to being in positive territory. While it's good news for the share price, it also means that it has suddenly become more expensive. Is Netflix stock worth buying right now, or are you better off waiting?
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What's next for Netflix?
Although investors are relieved that Netflix isn't taking on a huge acquisition that would have saddled it with debt, the company's management may still be looking at other deals to expand its content library and acquire some studios along the way.
When Netflix recently announced it would not be raising its price for Warner Bros., it called the deal a "nice to have" rather than a "must have" for its business. Warner Bros. Discovery was in the midst of breaking up its operations, and the opportunity presented itself for Netflix; this wasn't the case of Netflix going out to aggressively hunt for a big acquisition. This is also why I don't think investors should expect to see any other, similar-sized deals on the horizon. Netflix does say it still plans to invest $20 billion this year into films and expanding its content, but it did not suggest that it would pivot to another big acquisition.
For investors, that's great news because it underscores the disciplined management at Netflix, which is willing to spend on an acquisition, but only if it makes sense to do so. While I don't think the company needed the Warner Bros. acquisition to begin with, given that it was doing just fine in growing its operations, it's the kind of prudent management investors should seek out when looking for quality growth stocks to buy.
Has the stock gotten too expensive?
Netflix's stock has been climbing in recent days, and that has pushed its valuation back up. Now, it's trading at around 38 times its trailing earnings, which is a bit of a steep premium given that the average stock on the S&P 500 trades at only 25 times its profits.
However, if you're a long-term investor who's willing to hang on for years, I still think buying Netflix today is a good move. It has proven itself as a leader in the streaming industry, and with a continued focus on growth, it's the type of stock you can comfortably own for the long haul.
Should you buy stock in Netflix right now?
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
