It’s surprising to see a stock rise after a failed acquisition, but that’s exactly what happened with Netflix last Friday. The streaming giant’s shares jumped nearly 14% after it decided to back out of an $83 billion bid for Warner Bros. Discovery’s studio and streaming assets.
Many investors felt uneasy about Netflix taking on a massive amount of debt and managing a traditional Hollywood studio. By choosing to walk away, Netflix showed it values price discipline over ego, which appeased the market.
The stock’s rebound to around $96 a share has many investors wondering if this is a chance to buy. With a solid business model in place, it’s worth considering.
This move reflects Netflix’s commitment to its core business strategy. Co-CEOs Ted Sarandos and Greg Peters mentioned that while they could have managed Warner Bros.’ iconic brands effectively, it was not worth it at any cost. Instead, Netflix is choosing to invest in its own content, planning to spend about $20 billion on new films and series this year.
Notably, Netflix plans to restart its share repurchase program. This type of careful investment supports long-term growth, which has been crucial to the company’s success. Netflix’s latest financials show impressive growth, with revenue rising 18% year-over-year to over $12 billion. This boost came from higher pricing and increased ad revenue, improving the company’s operating margin, which expanded from 22.2% to 24.5%.
Looking ahead, Netflix expects its revenue could reach between $50.7 billion and $51.7 billion by 2026, growing around 12% to 14% each year. Its ad revenue is also a bright spot, projected to double to about $3 billion this year alone.
The popularity of Netflix’s original content continues to rise, with viewership for these shows increasing by 9% in the last six months of 2025. Originals account for roughly half of the platform’s overall viewing, making this growth crucial for Netflix’s future.
However, challenges persist. The streaming market is highly competitive, and Netflix faces threats from rivals with larger resources. Plus, its extensive global reach exposes it to various economic risks.
Netflix is still a powerful player, boasting over 325 million paid memberships and generating $9.5 billion in free cash flow last year. Yet, the stock’s current valuation raises eyebrows: it’s trading at about 38 times its trailing earnings. This high multiple suggests that a lot of positive expectations are already factored into the price.
While the move to forgo a massive acquisition shows smart management, it’s crucial to be cautious. The recent stock price increase could mean that it’s not the best time to buy. Potential investors might want to wait for a better entry point before diving in.
