TLDR
- Netflix revised its Warner Bros Discovery bid to all-cash at $27.75 per share, keeping the $82.7 billion price tag intact to block Paramount.
- The stock dropped over 5% after hours even though Q4 earnings hit $0.56 per share and revenue reached $12.1 billion, both beating forecasts.
- Paid subscribers grew to 325 million globally, but investors worry about heavy content spending and acquisition costs ahead.
- The company secured bridge loans and stopped share buybacks to fund the Warner Bros deal, which brings $85 billion in combined debt.
- Paramount’s competing $30 per share offer expires January 21, while Netflix expects a shareholder vote by April.
Netflix shares tumbled more than 5% in after-hours trading Tuesday despite posting solid Q4 numbers. The market reaction reveals that traders care less about past performance and more about future challenges.
The streaming company delivered Q4 revenue of $12.1 billion, topping Wall Street’s $11.97 billion estimate. Earnings per share landed at $0.56, edging past the $0.55 consensus.
Subscriber growth remained strong with 325 million paid members worldwide. That number reinforces Netflix’s dominance in the streaming space.
Yet investors sold off shares anyway. The reason lies in what Netflix plans to do next.
Cash Bid Replaces Stock Component
Netflix restructured its Warner Bros Discovery offer Tuesday, switching to pure cash at $27.75 per share. The $82.7 billion total stays the same.
The original proposal mixed $23.25 in cash with $4.50 worth of Netflix stock. That structure became problematic as Netflix shares tanked 15% since the December 5 announcement.
Netflix stock closed at $88 Friday, well under the $97.91 floor price from the initial bid. The all-cash approach eliminates that risk for Warner Bros shareholders.
Paramount continues pursuing Warner Bros with its own $30 per share all-cash offer. That bid expires today, January 21, creating urgency for all parties involved.
The Warner Bros board stands behind Netflix’s revised proposal. Co-CEO Ted Sarandos said the all-cash structure “will enable an expedited timeline to a stockholder vote and provide greater financial certainty.”
Growth Plans Come With Costs
Netflix’s 2026 revenue forecast spans $50.7 billion to $51.7 billion. The lower end fell short of analyst expectations, adding to investor concerns.
Heavy spending on content and new initiatives will continue. That approach supports long-term growth but could squeeze margins in coming quarters.
Advertising represents a bright spot. Ad revenue doubled last year and should double again in 2026 to approximately $3 billion. Building out the ad business requires investment though.
Live programming is expanding beyond traditional shows and movies. Netflix wants more sports and live events, particularly in international markets. The company is constructing new operations centers abroad to support this strategy.
Financial Structure Under Scrutiny
Netflix halted share repurchases to preserve cash for the Warner Bros transaction. Bridge loans were secured to help finance the deal.
The merged entity would hold roughly $85 billion in debt. Paramount’s competing bid would result in $87 billion in combined debt.
Market valuations tell a different story. Netflix commands a $402 billion market cap compared to Paramount’s $12.6 billion valuation.
Leverage ratios favor Netflix too. A Netflix-Warner Bros merger would carry a ratio under four times, while Paramount-Warner Bros would run around seven times.
Credit ratings matter in this fight. Netflix maintains investment-grade status while Paramount’s bonds sit at junk levels according to S&P.
Warner Bros dismissed Paramount’s $30 offer, citing “price and numerous risks, costs and uncertainties.” The board assigned values between $1.33 and $6.86 per share for the Discovery Global spinoff, depending on the valuation approach.
A shareholder vote on the Netflix deal should occur by April. The all-cash structure aims to speed up the approval process and remove uncertainty for Warner Bros investors.
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