Additional Coverage:
- Netflix stock sinks after earnings call, as confident co-CEOs can’t quell investor fears over the Warner Bros. bid (fortune.com)
Netflix’s Big Bet on Warner Bros. Discovery Gets Lukewarm Reception from Investors, Faces Regulatory Hurdles
Streaming giant Netflix, known for its captivating original content like “Stranger Things” and “The Crown,” is making headlines with its ambitious plan to acquire Warner Bros. Discovery. However, the company’s recent quarterly earnings report revealed a less-than-enthusiastic response from investors, coupled with potential challenges on the regulatory front.
Co-CEOs Ted Sarandos and Greg Peters pitched the $83 billion deal as a strategic move to bolster Netflix’s core streaming business and expand into traditional TV and theatrical film production. Sarandos highlighted Netflix’s history of successful transformations, recalling its origins as a DVD mailing service, and emphasized the deal’s potential for innovation and growth.
Despite the confident presentation, the news failed to impress investors. Netflix’s stock, already down 15% since the deal’s initial announcement in December, dipped another 4.9% in after-hours trading.
Investors expressed concerns that the acquisition could divert Netflix’s focus and force it to compete in unfamiliar territory. The company’s decision to temporarily halt share buybacks to finance the deal also contributed to investor apprehension.
The situation is further complicated by a rival offer for Warner Bros. Discovery from Paramount Skydance, raising fears of a potential bidding war.
While Warner Bros. Discovery has accepted Netflix’s updated all-cash offer, the competitive landscape suggests the story is far from over.
Beyond investor approval, Netflix faces the crucial task of winning over antitrust regulators, a process that has become increasingly unpredictable under the current administration. Sarandos and Peters framed the deal as a boon for American jobs, promising expanded production capacity and continued investment in original content, which they argued would create more opportunities for creative talent.
They also assured that Warner Bros. Discovery’s experienced teams would remain in place to run their respective businesses.
However, some analysts suggest Netflix may have overlooked a critical element in securing government approval: a public acknowledgment of the Trump administration. Peers like Nvidia’s Jensen Huang and Meta’s Mark Zuckerberg have reportedly seen positive outcomes after praising the administration on earnings calls and in public statements.
The absence of a similar “Trump callout” from Netflix on Tuesday’s earnings call has raised questions, especially considering that Paramount Skydance, Netflix’s competitor for Warner Bros. Discovery, is led by an outspoken Trump supporter.
Whether this omission will impact the deal’s regulatory fate remains to be seen. Nevertheless, it adds another layer of complexity to Netflix’s already challenging quest to make its Warner Bros. Discovery acquisition a blockbuster success.