Netflix Shares Drop Following Analyst Doubts on Warner Bros. Discovery Bid

Bassyonni

ago 2 hours

Netflix’s shares experienced a decline on Wednesday, falling by 4 percent to $109.57. This downward movement followed skepticism from Morgan Stanley analyst Benjamin Swinburne regarding the streamer’s potential bid for Warner Bros. Discovery (WBD).

Analyst Doubts on Warner Bros. Discovery Bid

Swinburne raised concerns about the value of acquiring Warner Bros. Discovery, emphasizing potential challenges in synergy and regulatory approval. He noted that Netflix might face a complicated investment scenario, which could distract management and dilute earnings per share (EPS).

Impact on Netflix Shares

Netflix shares dropped by $4.51 following analyst commentary.
Swinburne suggested the acquisition could complicate Netflix’s investment thesis.
Concerns arose about distractions for management and EPS dilution.

According to Swinburne’s investor note dated November 19, uncertainties surrounding the acquisition have placed some pressure on Netflix shares. Despite this, he remains optimistic about Netflix’s growth potential, particularly regarding advertising revenue and audience engagement.

Competitive Bidding Landscape

The ongoing bidding contest for WBD also includes other major players. Paramount, under CEO David Ellison, has emerged as a strong contender, while Comcast and Netflix are also in the running. Preliminary bids for WBD are expected to be submitted this week.

Challenges of Integration

If Netflix wins the bidding war, integrating Warner Bros. studio properties could present significant risks. Swinburne mentioned multiple factors contributing to these challenges:

Transitioning movies and TV series to streaming could disrupt traditional distribution.
Existing multi-year licensing agreements might complicate decisions for current productions.
The integration may necessitate time to adapt to new business models.

Shifting strategies from theatrical releases to direct-to-consumer models could pressure earnings in the short term. However, Swinburne acknowledged potential long-term benefits, including added value from acquiring HBO.

Regulatory Concerns

One of the major hurdles Netflix could face in pursuing WBD is regulatory scrutiny. Swinburne explained that while Federal Communications Commission (FCC) approvals might not be necessary, the Department of Justice (DOJ) could examine the merger under antitrust laws.

Concerns from various stakeholders, including theater operators and labor unions, may also complicate the acquisition. As Netflix navigates through these challenges, the implications of a WBD bid remain to be fully understood.