We're Opening a Position in This Streaming Giant With a New Price Target
Here's our plan for the binary outcome of a prolonged bidding war.
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| Symbol | Transaction Type | # Shares Traded | Recent Price $ | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
NFLX | Buy | 645 | $83.25 | 645 | 1.0% |
After you receive this alert, the Portfolio will buy 645 shares of Netflix (NFLX) at or near $83.25. Following the trade, those Netflix shares will account for 1.0% of the Portfolio’s assets.
When we look at the current bidding war for Warner Bros. Discovery (WBD) between Netflix and Paramount Skydance (PSKY) , we see a binary outcome that we’ve discussed with you before. If Paramount wins, the overhang that was created on December 5 when Netflix made an official offer to buy Warner will be removed. At that time, NFLX shares were trading around $100, and the business is expected to deliver 13% top-line growth this year and roughly 23% EPS growth to the $3.12 consensus.
In addition to Paramount sweetening its bid for Warner, one that led Warner to further talks with Paramount, we’ve seen the White House indicate it view that it subtly or not so subtly favors the Ellison-backed Paramount bid.
Remember, Oracle’s (ORCL) Larry Ellison, who is the financial muscle behind Paramount and its bid, is a Trump supporter and one of the key players in Trump’s Stargate infrastructure project. Ellison and Trump helped broker a deal that gave Oracle a 15% stake in TikTok’s U.S. entity.
We’ve also seen a coalition of state attorneys general led by Republicans urge the government to comprehensively dissect Netflix‘s bid for Warner Bros. Discovery. Their reasoning is that a deal between Netflix and Warner Bros could create a monopoly, in violation of antitrust laws, by bundling the number one and number three streamers. In their letter, the states raised concerns that Netflix will face less competition and may start declining to license content to rivals if it’s allowed to acquire Warner Bros., which could lead to higher subscription prices for less content. It also implies the merger will have a disastrous impact on movie theaters.
This explains the shift we’ve seen at prediction market Kalshi, which now pegs Paramount’s odds of winning Warner Bros at 56% compared to 18% on January 31. Over that same time frame, the odds of a Netflix win have fallen to 36% from 63%.
It also explains why we’ve seen NFLX share move up from their recent low near $75, not too long after Netflix CEO Ted Sarandos shared the company has a history of walking away from deals and they are disciplined buyers.
On the one hand, it appears the deck is increasingly stacked against Netflix. On the other, do these companies want to be tied up for a prolonged battle, which would run the risk of stalling existing plans and runs the risk of management taking its eye off the ball?
In the case of Netflix, a win would also mean saddling itself with substantial debt and integration risk of a movie studio and distribution arm into a market (movie theaters) it has little exposure to. And several years after we’ve moved past the pandemic, the domestic box office in 2025 was 27% below where it was in 2018.
After much deliberation, when push comes to shove, our assessment of all the above is that it is more likely that Netflix walks away from Warner Bros Discovery than not.
That is leading us to take on a relatively small position in NFLX shares with a price target of $100, which we admit is well below the current consensus price target of $111.
We continue to see a standalone Netflix as well positioned in streaming, especially as the higher margin advertising business becomes a larger part of its revenue mix. We’ll also point out that the most recent short interest data from Nasdaq shows about 83 million shares were short as of mid-February. It’s a reason to think that, if Netflix does walk, we could see a quick pop in the shares.
In terms of risk management, because the outcome is poised to be a binary one, should Netflix win the bid for Warner Bros, given the concerns laid out above and the near-term challenges they present, we would not be inclined to remain NFLX shareholders. For that reason, we are withholding a formal rating on NFLX shares, and will introduce one should Paramount be named the winner of Warner Bros.
In terms of the Portfolio’s cash position following this trade, we have multiple positions that have moved above 4% position sizes and, should they encroach on the 4.5% level, some prudent register ringing would be called for. We will also be closely watching for overbought conditions, which could lead to some prudent profit taking, especially if they are accompanied by a strong move in a company’s stock price.
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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)
