Netflix lost the Warner bid — but still emerged a winner

Netflix exits Warner Bros. bid 

Netflix Inc (NASDAQ: NFLX) dropped out of the race to acquire Warner Bros. studios and streaming assets after Warner Bros. Discovery (WBD) deemed Paramount Skydance’s latest proposal superior. Paramount offered USD 31 per share for the entire WBD, above the USD 27.75 per share previously agreed with Netflix.

The revised offer included USD 45.7 billion in equity from the Ellison Trust, a 25-cent-per-share quarterly fee if the deal does not close by 30 September 2026, coverage of the USD 2.8 billion breakup fee owed to Netflix, and a USD 7 billion reverse termination fee if regulators block the transaction. The higher headline price and strong financial protections were enough to convince WBD’s board, which had previously rejected Paramount’s offers.

Netflix had four business days to counter Paramount’s bid but withdrew within two hours of WBD’s announcement, stating that matching the offer was “no longer financially attractive.”

The market welcomed the news, with Netflix’s shares closing 13.75% higher on 27 February.

Netflix is still a winner

Rather than pursuing the WBD acquisition at any cost, Netflix’s leadership chose to prioritise financial discipline, a move we view positively.

Netflix walks away USD 2.8 billion richer thanks to the termination fee outlined in its agreement with WBD. That represents nearly 30% of its 2025 free cash flow of USD 9.5 billion. Management plans to reinvest the capital into the business, with roughly USD 20 billion allocated to films and series in 2026. The company will also resume its share buyback program, reducing the number of shares outstanding over time. This should support EPS growth and potentially lead to stronger share price appreciation.

While a merged Paramount-Warner entity would be sizeable, we do not see it posing a near-to-medium-term threat to Netflix. The combined company will need to secure regulatory approvals, integrate operations, and deleverage a heavier balance sheet. These factors are likely to constrain content spending and slow market share expansion. Post-merger, the entity would have a combined 210 million streaming subscribers, still well below Netflix’s 325 million.

Figure 1: Subscriber comparison

There are concerns that Paramount-Warner could slow Netflix’s growth by licensing less content or making popular shows exclusive to its own platforms. However, we believe this is unlikely, as the new entity will need all the cash flow it can get to service its debt.

Most importantly, we do not see the failed acquisition as a structural setback for Netflix’s long-term growth. Unlike Paramount, which arguably needed Warner to compete in the streaming wars, Warner assets were a “nice to have” rather than a “must have” for Netflix. Netflix can continue to expand and maintain its leadership in the global streaming market without them.

Growth beyond acquisitions

Netflix’s long-term thesis does not depend on M&A. The company retains multiple organic growth levers that could drive revenue, engagement, and subscriber growth in the coming years.

Advertising: A rapidly scaling revenue engine

Advertising has emerged as a meaningful revenue steam. In 2025, ad revenue more than doubled to over USD 1.5 billion in just its third year. Management expects this momentum to continue, forecasting roughly USD 3 billion in ad revenue for 2026. With scale established across all its ad-supported markets, Netflix is focused on maximising monetisation.

On the supply side, Netflix is strengthening its ad capabilities by transitioning to an in-house first-party ad tech platform. This gives the company greater control over targeting, measurement, and ad formats. Generative AI tools are also being deployed to streamline ad creation and campaign planning.

On the demand side, Netflix has integrated its ad inventory with major demand-side platforms such as The Trade Desk, Google (DV360), Amazon and Yahoo. These integrations expand advertisers’ access to Netflix’s inventory, improve fill rates, and enhance revenue potential.

Live events and gaming: Deepening engagement

While live programming accounts for a relatively small portion of Netflix’s total content budget and overall viewing hours, these events can deliver outsized value. High-profile events like Anthony Joshua’s sixth-round knockout of Jake Paul and NFL Christmas Day drove notable spikes in engagement and signups.

In 2026, Netflix is expanding its live offerings internationally, streaming all 47 games of the World Baseball Classic in Japan and opening new live operations centers in the UK and Asia. Large live events serve as powerful acquisition tools, attracting new subscribers to explore Netflix’s broader on-demand library.

Gaming is another emerging growth area. Launched in Q4 2025, Netflix’s “cloud-first” gaming strategy allows members to play casual party games like Boggle, Pictionary, and Tetris directly on their TVs using smartphones as controllers. This removes hardware barriers and broadens accessibility.

Alongside mainstream licensed hits like Grand Theft Auto and an upcoming FIFA football simulation game, Netflix is investing in immersive narrative games based on its own intellectual property, such as Squid Game: Unleashed. Gaming deepens engagement by allowing viewers to interact with their favourite shows, creating a reinforcing loop between interactive and traditional content. This dynamic can increase the perceived value of the core subscription and support stronger retention over time.

By iteratively investing in live programming and gaming as these categories prove their impact on member engagement, Netflix is evolving from a traditional on-demand video streamer into a comprehensive, interactive entertainment platform.

Valuations remain compelling after rally

We believe Netflix’s valuation remains attractive even after the recent share price rally.

We have raised our adjusted EPS projections for 2026 and 2027 to reflect the elimination of acquisition-related expenses and the resumption of share buybacks.

We have also increased our fair PE multiple from 30X to 33X, reflecting the removal of deal-related uncertainty, including regulatory approvals, integration risks, and potential balance sheet strain. With these overhangs lifted, Netflix deserves a higher multiple in our view.

Applying 33X PE to our 2027 projected earnings yields a target price of USD 128, implying 32% upside from current levels.

With disciplined capital allocation and multiple organic growth drivers, Netflix remains well positioned for long-term value creation.

Table 1: Projections for Netflix’s earnings

Netflix	2024	2025	2026E	2027E
Earnings Per Share (EPS)	2.0	2.5	3.2	3.9
Earnings Growth YoY	58.9%	29.6%	26.8%	20.5%
PE Ratio (X)	49.5	38.2	30.2	25.0
Target Price (based on a fair PE of 33X)				128
Upside Potential				31.9%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 2 March 2026

Figure 2: Share prices are driven by earnings growth in the long run

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds a position in Netflix Inc.