Netflix stock falls as Warner Bros deal worries shake investors

Netflix shares have been under pressure since late June and selling became worse in October. The selling increased after Netflix was seen as a likely buyer of Warner Bros. Discovery. Since June 30, Netflix stock has fallen by about one-third from its peak.

The stock recently hit its lowest intraday level since April after falling about 2% on Friday, as reported by GuruFocus. Even after the fall, Netflix is trading at about 28 times expected earnings for the next 12 months. This valuation is higher than streaming rivals Disney, Amazon and Alphabet, and also higher than the S&P 500 and Nasdaq 100. However, Netflix’s valuation is still below its five-year average multiple of 34.

Netflix deal

Investors are more worried about deal uncertainty than Netflix’s daily business. Netflix shares dropped 10% on Oct. 22, their worst single-day fall in more than three years. That drop came after earnings raised worries about future growth. Focus then shifted to a possible takeover of Warner Bros., valued at $82.7 billion. Shareholders are worried about the high cost of the deal.


Investors are also concerned about regulatory issues and Netflix’s lack of experience with very large mergers. Warner Bros. recently rejected another bid from Paramount Skydance. Paramount Skydance later confirmed a $30-per-share offer but said it faces financing problems, GuruFocus reported. Since the end of June, Netflix has become the fourth-worst performing stock in the Nasdaq 100.

Netflix stock valuation

The weak performance shows how deal-related news has hurt investor confidence. Opinions on Netflix’s valuation are split among investors. Some investors believe the stock could look better if Netflix buys Warner Bros. near the current price. Other investors remain cautious because of integration risks and Warner Bros.’ heavy debt.

Netflix earnings outlook

Christopher Brown of Synovus Securities highlighted Netflix’s price-earnings-to-growth ratio of just over one. He said this measure looks more balanced than simple valuation ratios. Brown said the stock could rebound to $102.50 to $109.70 in the near term if Netflix meets or beats fourth-quarter guidance. Netflix is set to report earnings on Jan. 20, as noted by GuruFocus.

Wall Street expects adjusted earnings of 56 cents per share on revenue of $12 billion, according to Wall Street estimates. Broader tech sentiment has been supported by strength in other companies, including Alphabet. Alphabet recently moved closer to a $4 trillion market value, helping overall sector confidence.

FAQs

Q1. Why is Netflix stock falling?

Netflix shares are falling mainly because investors are worried about a possible Warner Bros. deal and future growth.

Q2. When will Netflix announce its next earnings?

Netflix is expected to report its earnings on January 20.