:max_bytes(150000):strip_icc()/GettyImages-2249483074-9c9368b4216546bea7adaa9d54691c0c.jpg "Netflix Stock Hasn’t Impressed Investors Lately. Its Deal for Warner Bros. Isn’t Helping.")
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Key Takeaways
- Netflix shares slid Wednesday, extending their monthslong decline after the streaming giant failed to impress investors with its latest financial results.
- Netflix’s earnings narrowly topped fourth-quarter estimates, but the streaming giant’s first-quarter outlook disappointed. The company also said it would pause stock buybacks in order to finance its acquisition of Warner Bros. Discovery.
Investors are scrutinizing Netflix’s results more closely than ever. They don’t like what they see.
The streaming giant’s stock was down nearly 5% in recent trading, sliding after reporting earnings that narrowly topped analysts’ estimates, as Netflix (NFLX) failed to impress investors with its outlook amid concerns around its efforts to buy Warner Bros. Discovery (WBD).
The move lower extends a monthslong decline for the entertainment stock, with Wednesday’s losses leaving Netflix shares down nearly 40% from last summer’s highs. Uncertainty around Netflix’s pending purchase of Warner Bros. Discovery, which faces likely regulatory scrutiny as well as a competing bid that has forced the company to rework its offer, has added to the pressure on the stock.
Why This Matters to Investors
Wednesday’s losses underscore how Netflix investors, long accustomed to strong results from the streamer, have heavily punished the stock for underwhelming results in recent quarters.
Netflix said late yesterday it expects earnings per share of $0.76 on revenue of $12.16 billion in the current quarter, slightly below the EPS of $0.82 on revenue of $12.19 billion that analysts surveyed by Visible Alpha were looking for. Netflix also said it plans to pause stock buybacks to help it accumulate cash for the Warner Bros. deal, the change coming after amending its offer to an all-cash deal in an effort to fend off a competing offer from Paramount Skydance (PSKY).
The streamer’s fourth-quarter results came in slightly better than expected, with revenue of $12.05 billion compared to the $11.97 billion analyst consensus, and EPS of $0.56, a cent above estimates.
William Blair analysts wrote following the results that while the “overall fundamentals of the business remain solid,” they expect Netflix’s stock could remain under pressure until the Warner Bros. deal is completed.
That could mean more volatility until at least April, when Netflix is set to report first-quarter results and shareholders are scheduled to vote on the deal, analysts at Wedbush told clients Wednesday.
Both firms, which reiterated “outperform” ratings for the stock, suggested that could potentially set Netflix up for a rebound after the deal is finalized.
While ratings are still in flux, Wall Street analysts’ mean target compiled by Visible Alpha at $115 would suggest over 26% upside from the stock’s recent level.
