Tuning out of Netflix (NFLX), for now.
When Netflix reports earnings after the close of trading on Tuesday, investors will have to use both sides of their brains. And even then there is no guarantee a logical conclusion on the stock will emerge!
While the fourth quarter is expected to be good on the back of strong content such as Stranger Things and Squid Games, it may not be strong enough to offset investor concerns about Netflix buying legacy media outfit Warner Bros. Discovery (WBD) for $72 billion.
The concerns on the deal are numerous, and serve as black cloud over a now former growth stock. First, this would be Netflix’s first real acquisition of any form. There could be no guarantee the growth mindset of Netflix marries well to the bloated, slower way of life at Warner Brothers.
Second, Netflix would be adding a ton of debt on its books to close the deal.
And lastly (I’m leaving a few other particulars out for time purposes), Netflix could be spending all its efforts in 2026 trying to finalize a deal that the Trump administration could squash. His ally, Oracle’s (ORCL) Larry Ellison, is backing son David Ellison and Paramount’s (PSKY) hostile bid for Warner Bros.
In the process, Netflix execs from top to bottom could slip on the execution front.
“So I don’t like the deal,” Suncoast Equity Management’s Eric Lynch told me on Yahoo Finance’s Opening Bid (video above).
“I much prefer Netflix licensing unbelievable content like K-Pop Demon Hunters and using their vast distribution platform to monetize that. So they’ve done a fantastic job moving from negative free cash flow to free cash flow post pandemic. It’s a great business model. I hate to see them baggage themselves with all this debt and this extra content that they probably just don’t need.”
In case you are wondering, Netflix shares have plunged 15% since it announced its intent to buy Warner Brothers on December 5. The S&P 500 has added 1.5%.
Meanwhile, there is real concern on the Street that Netflix will guide 2026 profits below consensus later today. This reflects the uncertainty on the ongoing costs of the bid for Warner Brothers and tough financial comparisons to a year ago.
Listen live to Netflix’s earnings call on Yahoo Finance
“We worry that FY26 revenue guidance coming below the Street’s +13% year over year estimate could impact confidence in the organic growth story amid heightened scrutiny post‑Warner Brothers,” Jefferies analyst James Heaney warned. “Secondarily, we believe investors will need to see at least Q4 revenue growth of 16% constant currency and FY26 operating margin of 32-33% to build confidence in path to $4.00 plus FY27 standalone earnings per share.
