Actions of the streaming leader netflix(NASDAQ: NFLX) have soared recently, and for good reason: Management abandoned a massive, risky acquisition.
When the company officially abandoned its search for Warner Bros. DiscoveryThe studio’s assets, a deal previously valued at $82.7 billion. — the stock jumped; Wall Street applauded the move, calling it a clear sign of capital discipline.
Will AI create the world’s first billionaire? Our team just published a report on a little-known company called “Indispensable Monopoly” that provides critical technology that both Nvidia and Intel need. Continue “
Withdrawing meant avoiding a complex integration and avoiding a massive financial commitment. More importantly, it meant Netflix could immediately resume its share buyback program, backed by the impressive $9.5 billion in free cash flow it generated in 2025..
Combined with the company’s strong underlying business performance, the canceled deal reinforced the bullish case.
But is the stock a buy today?
Image source: The Motley Fool.
It’s easy to celebrate Netflix walking away from an $82.7 billion megadeal. But investors should ask themselves a more fundamental question: Why was the company considering a transaction of that scale in the first place?
The answer points directly to the stock’s biggest risk: intense competition.
The fact that the company even considered the deal with Warner Bros. suggests how important Netflix believes it is to continue spending aggressively on content to defend its turf.
And Netflix has always been open about this environment.
“We have long stated that we compete against all activities that people do during their free time, including, but not limited to, other streaming services, linear television, social media, open content platforms, video games, and concerts, to name just a few,” Netflix explained during its fourth-quarter letter to shareholders. “As a result, the entertainment business has always been and remains fiercely competitive with strong players such as American media conglomerates, large technology companies, and local broadcasters and media companies outside the United States.”
You’re competing for the absolute share of screen time against anyone competing for consumer attention, including scrolling on social media and viewing user-generated content on AlphabetYouTube.
In a landscape where attention is increasingly fragmented, acquiring and retaining subscribers requires a constant and expensive pace of massive global successes. An expanding content library is not a luxury; It is a basic requirement for survival. And Netflix’s flirtation with Warner Bros. studio assets reveals just how hungry the established intellectual property company is to feed that machine..
In fact, in the same press release in which Netflix announced its decision to move away from Warner Bros., the company said it plans to invest $20 billion in movies and series this year.
With the stock’s recent rally, the valuation leaves very little cushion if that competitive pressure begins to weigh on growth..
At the time of writing, Netflix is ​​trading at a price-earnings ratio of around 37. At this multiple, investors are not only paying for a solid business today; They are discounting the assumption that Netflix will continue to grow its revenue at a double-digit rate while expanding its profit margins in the coming years..
Of course, Netflix is ​​currently living up to those high expectations. The company expects its operating margin to grow from 29.5% in 2025 to 31.5% in 2026.
There’s also a secondary catalyst to consider: the company’s rapidly growing advertising business. Management noted that advertising revenue increased more than 150% in 2025 to more than $1.5 billion, and the company expects this to roughly double in 2026. However, while promising, this segment remains a relatively small slice of the total revenue pie; Netflix’s total revenue in 2025 was $45.2 billion.
And there are already signs that overall growth could moderate. Management’s guidance for the first quarter of 2026 calls for revenue of $12.2 billion. That 15.3% year-over-year growth, a clear slowdown from the 17.6% revenue growth it posted in the fourth quarter. And for the full year, the company expects revenue to rise between 12% and 14%, or just 11% to 13% in constant currency.
If competition forces Netflix to keep spending on content high, or if pricing power softens as consumers consolidate their streaming subscriptions, the price-earnings multiple the market is willing to assign to the company could decline over time..
Ultimately, Netflix is ​​an exceptional business with a highly disciplined management team. The decision to abandon the deal with Warner Bros. and continue with the share buyback was probably the right one.
But given the intense competition for consumer attention and the high expectations built into the stock’s current valuation, I think Netflix is ​​more of a hold than a buy right now..
Before you buy Netflix stock, consider this:
He Varied and Dumb Stock Advisor The analyst team has just identified what they believe are the 10 best stocks for investors to buy now… and Netflix was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you would have $514,000!* Or when NVIDIA made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $1,105,029!*
Now, it is worth noting stock advisor the total average return is 930%: An overwhelming outperformance of the market compared to the S&P 500’s 187%. Don’t miss the latest Top 10 list, available with Stock Advisorand join an investing community created by individual investors for individual investors.
See the 10 actions »
*Stock Advisor returns starting March 14, 2026.
Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool ranks and recommends Alphabet, Netflix, and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
Netflix Stock Has Soared Since It Walked Away from Warner Bros. Is It Time to Buy? was originally published by The Motley Fool
