Netflix Shares Have Skyrocketed After Parting Ways With Warner Bros. Is Now the Right Time to Invest?

Netflix Shares Surge After Backing Out of Major Acquisition

Netflix's stock has experienced a significant uptick, largely due to the company's decision to step away from a high-stakes acquisition. Management opted not to pursue the purchase of Warner Bros. Discovery's studio assets—a deal previously estimated at $82.7 billion. This move was met with approval from investors, who saw it as a demonstration of prudent financial management.

By abandoning the acquisition, Netflix avoided the challenges of integrating a massive new business and sidestepped a substantial financial obligation. More importantly, this decision allowed the company to quickly resume its share buyback program, supported by the impressive $9.5 billion in free cash flow generated in 2025.

Combined with Netflix's robust business fundamentals, the canceled deal has strengthened the optimistic outlook for the stock. But does that make Netflix a buy at current levels?

Image source: The Motley Fool.

The Deeper Implications Behind the Abandoned Deal

While Netflix's decision to walk away from an $82.7 billion transaction is being celebrated, investors should consider why such a large acquisition was on the table to begin with. The answer highlights the company's greatest challenge: fierce competition.

Netflix's interest in acquiring Warner Bros. assets underscores its belief in the necessity of aggressive content investment to maintain its leadership. The company has long acknowledged the competitive landscape, stating in its shareholder letter that it vies for consumers' leisure time against not only other streaming platforms, but also traditional TV, social media, open content sites, video games, and live events. Major U.S. media conglomerates, tech giants, and local broadcasters all compete for viewers' attention.

Netflix is essentially battling for a share of every minute consumers spend in front of a screen, whether that's watching YouTube, scrolling through social media, or engaging with user-generated content. In such a fragmented environment, attracting and keeping subscribers demands a steady stream of blockbuster content. A vast content library is now a necessity, not a luxury, and Netflix's interest in Warner Bros. assets reveals its appetite for established intellectual property to fuel its platform.

Ongoing Content Investment and Valuation Concerns

In the same announcement where Netflix revealed it was stepping away from the Warner Bros. deal, the company also committed to investing $20 billion in new films and series this year.

Valuation Leaves Little Room for Error

Following the recent rally, Netflix's valuation offers little protection if competitive pressures begin to impact growth. The stock currently trades at a price-to-earnings ratio of around 37, reflecting not only confidence in the business today but also expectations for continued double-digit revenue growth and expanding profit margins for years to come.

At present, Netflix is meeting these high expectations, projecting its operating margin to rise from 29.5% in 2025 to 31.5% in 2026.

Another growth driver is the company's rapidly expanding advertising segment, which saw revenue climb over 150% in 2025 to surpass $1.5 billion. Netflix expects this figure to nearly double in 2026. However, advertising still represents a small portion of the company's total revenue, which reached $45.2 billion in 2025.

There are already indications that overall growth may be slowing. For the first quarter of 2026, management forecasts revenue of $12.2 billion—a 15.3% increase year-over-year, but a slowdown from the 17.6% growth seen in the previous quarter. For the full year, revenue is expected to rise by 12% to 14%, or 11% to 13% when adjusted for currency fluctuations.

If competition forces Netflix to maintain high content spending or if its pricing power weakens as consumers consolidate their streaming subscriptions, the market may eventually assign a lower price-to-earnings multiple to the stock.

Netflix remains a standout company with a disciplined leadership team. Choosing to forgo the Warner Bros. acquisition and continue share repurchases was likely a wise move. However, given the intense competition for viewers and the lofty expectations embedded in the current share price, Netflix appears to be more of a hold than a buy at this time.

Is Now the Right Time to Invest in Netflix?

Before making a decision to purchase Netflix shares, consider this:

When Netflix was recommended on December 17, 2004, a $1,000 investment would now be worth $514,000.*

When Nvidia was recommended on April 15, 2005, a $1,000 investment would have grown to $1,105,029.*

Currently, Stock Advisor's average return stands at 930%, far outpacing the S&P 500's 187%. Don't miss the latest top 10 picks, available through Stock Advisor, and join a community of investors supporting each other.

*Stock Advisor returns as of March 14, 2026.

Daniel Sparks and his clients do not hold positions in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Netflix, and Warner Bros. Discovery. For more information, see The Motley Fool's disclosure policy.

Netflix Stock Has Soared Since It Walked Away From Warner Bros. Time to Buy? was first published by The Motley Fool.

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