Despite beating recent earnings estimates and posting record results, Netflix stock recently hit a 52-week low. Wall Street’s cold shoulder comes as the company seems poised to win the $100 billion bidding war for the legacy Warner Bros. studio, turning Netflix into an even more powerful player in the entertainment industry.
So what’s behind the market’s unfriendly reaction?
The disconnect between Netflix’s ambition and its stock performance stems from a clash between long-term strategy and short-term financial realities, according to two entertainment analysts and a corporate lawyer specialized in big takeovers. While Netflix is still profitable and aggressively expanding its content library and advertising infrastructure, the market is fixated on shrinking margins and that aforementioned big deal—specifically the uncertain costs of a potential acquisition of Warner Bros.
Melissa Otto, head of visible Alpha Research at S&P Global, was blunt: “It could be dead money until we get a meaningful catalyst.” This means she sees Netflix’s recent trading down from the $109 range, before the Warner deal was announced, to the low $80s, as the market repricing the big reader streamer, meaning it will likely trade “range bound” for the foreseeable future until the narrative changes. Another outside-the-box hit like Stranger Things or Squid Game wouldn’t be a catalyst to her, she explained: “What we would like to see is how a deal with Warner Brothers is going to drive earnings growth and fuel cash flow generation.”
