Up 826% in 10 Years, Is Netflix About to Make an $83 Billion Mistake?

In little than 2 decades, Netflix (NASDAQ: NFLX) went from a doubted manufacture innovator to a ascendant unit successful the planetary media and amusement landscape. Its shares bespeak the monster occurrence it has achieved, soaring 826% successful the past decennary (as of Jan. 28).

But is Netflix astir to marque an $83 cardinal mistake?

Where to put $1,000 close now? Our expert squad conscionable revealed what they judge are the 10 champion stocks to bargain close now, erstwhile you articulation Stock Advisor. See the stocks »

Netflix refreshed its connection to instrumentality implicit definite assets of Warner Bros. Discovery, present making it an all-cash woody astatine $27.75 per share. Based connected information from Dec. 4, this puts the equity worth of the projected transaction astatine $72 billion. Netflix volition usage currency connected manus of $20 cardinal and instrumentality connected indebtedness of $52 billion. Adding successful the target's studios and streaming nett indebtedness pushes the woody size to an enterprise value of $82.7 billion.

This is simply a worldly transaction. Netflix's marketplace headdress is presently $357 billion. A determination of this size is retired of the mean for the company.

Historically, Netflix has expanded chiefly via organic growth. It has avoided ample deals, which makes it basal retired successful the industry. Walt Disney spent $71 cardinal successful 2019 to bargain definite assets of 21st Century Fox. Amazon bought MGM for $8.5 cardinal successful 2022. Last year, Disney received the 33% involvement successful Hulu that it didn't ain for $9 cardinal successful total.

Netflix has besides been hesitant to measurement into the unrecorded sports waters, a strategy it has warmed up to. Tech giants similar Amazon, Alphabet, and Apple aren't sparing immoderate disbursal successful this regard.

The institution argues that this transaction volition payment each stakeholders. This includes consumers, radical who enactment successful the amusement industry, and investors.

Netflix's enactment hopes to recognize $2 cardinal to $3 cardinal successful yearly outgo savings by the 3rd twelvemonth post-close. And they judge that successful twelvemonth two, the woody volition beryllium accretive to net per share.

But is that capable to warrant a astir $83 cardinal terms tag? Netflix executives merit immoderate recognition for gathering the concern into the streaming leader.

However, investors should beryllium captious astir the institution being capable to execute an capable instrumentality connected specified a large spending decision. The likelihood aren't stacked successful Netflix's favor. Data from KPMG shows that 57% of mergers and acquisitions betwixt 2012 and 2022 destroyed shareholder worth successful the 2 years pursuing the transaction's close.

Since this projected woody was announced connected Dec. 5, Netflix shares person fallen 16%. The marketplace intelligibly has a downbeat presumption of the proposal.