New Netflix Price Target as Streaming Giant Faces Exit From Warner Bros Bid
If Netflix drops its bid for Warner Brothers, the stock could skyrocket.
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Netflix (NFLX) had a strong day on Wednesday, gapping higher to finish with a gain of 6%. Is a bigger bullish move for Netflix about to unfold?
Netflix shares have lost nearly one-third of their value over the past six months. The streaming giant is down in part due to its attempts to buy certain assets of Warner Brothers Discovery (WBD) for $27.75 per share.
This week, another suitor, Paramount Skydance (PSKY) , raised its bid for the entirety of Warner Brothers Discovery from $30 to $31 per share. Warner Brothers indicated that it will consider Paramount’s new offer.
Now that Paramount has raised its bid for Warner Brothers, the weight of the Netflix proposal has been removed from its shares. The stock popped on Wednesday like a beachball held underwater, thanks to Paramount’s fresh bid.
Pyrrhic Victory?
Netflix now has the opportunity to exit gracefully from what could have been a Pyrrhic victory. It’s unclear whether the Department of Justice would’ve given this merger its blessing. Attorneys general from 11 states have asked the DoJ to review the proposed transaction, due to concerns about reduced competition.
The combination of the largest streaming service (Netflix has 325 million subscribers) with Warner Brothers’ HBO Max would result in over 450 million subscribers. That’s more than double the second-largest streaming service, Amazon Prime, which has about 200 million subscribers.
To be fair, Paramount has about 79 million subscribers — about 50 million fewer than HBO Max. Obviously, any pairing with Netflix would produce the largest streamer, since it already holds that title.
The 1927 Yankees of Streaming Services
Beyond subscription numbers, there is also a question of programming. A combined Netflix and HBO Max could offer "The Sopranos," "Breaking Bad," "Mad Men," "The Wire," "Game of Thrones" and "Succession," all on one platform.
It would be the 1927 New York Yankees of streaming services. If you could only choose one service, this would be the one. It would dominate the space.
Our Strategy and Price Target for Netflix
Our strategy for Netflix revolves around the stock’s selloff from its all-time high, set last July (point A) to its recent, year-to-date low (point B).
Target 1 (T1) is the 38.2% Fibonacci retracement of that selloff. This makes $98 our preliminary target. If the stock cooperates, I’ll close half the position here.
Target 2 (T2) is the 61.8% of that same Fib retracement. Therefore, $111 becomes our second and ultimate price target.
Bottom Line
If Netflix bows out now, I believe the bottom is in, and the stock will fly. If I’m wrong, and the stock drops below $75, I’ll take the loss and move on.
At the time of publication, Ponsi was long NFLX.
