Netflix stock has been on a rough ride lately. The $83 billion reason for that is the deal to buy Warner Bros. Discovery, which will be in sharp focus when the video streamer reports its fourth-quarter results after Tuesday's closing bell.
Analysts expect Netflix to post earnings per share (EPS) of 55 cents on revenue of $11.97 billion, according to a FactSet poll. For the same period a year ago, the company reported EPS of $4.27 on revenue of $10.25 billion. (The 2024 earnings per share figure looks higher because Netflix split its stock 10-for-1 in November.)
Netflix could also issue guidance for the current year. Wall Street is estimating the company will post EPS of $3.24 on revenue of $51.02 billion in 2026.
The results might be a welcome distraction. Shares have slumped 15% since the market opened on Dec. 5.
That's the day Netflix said it would buy Warner's streaming and studios assets for $27.75 a share -- $23.25 a share in cash and the rest in Netflix stock, with cable being spun out to investors. The S&P 500 is up 1.2% over the same period.
Investors are fretting that Netflix may be overpaying for Warner, and taking on too much debt to do so. The fears have only intensified since Paramount Skydance entered the fray with a hostile bid, which has increased the likelihood of a bidding war.
The $83 billion price tag means Netflix is paying about 25 times the $3.3 billion in earnings before interest, taxes, depreciation, and amortization (Ebitda) it expects the Warner assets to produce in 2026. In comparison, Walt Disney is valued at about 11 times its expected Ebitda for its current fiscal year.
Don't expect Tuesday's results to make those worries disappear -- but a much-needed earnings beat could still help Netflix stock claw back some of its recent losses.
"Who are we kidding, there is no chance that this print distracts investors from the ongoing circus," Benchmark analyst Daniel L. Kurnos wrote in a research note last week.
"But it could be a reminder of the soundness of Netflix's fundamentals and the organic levers the company has going into what should be a banner year for connected television," he added. Kurnos rates shares Hold.
There have already been plenty of plot twists in the takeover saga that's expected to upend Hollywood. Just days after Netflix announced it had agreed to buy Warner, Paramount unveiled an all-cash, $30-a-share hostile bid.
Paramount then amended its offer to include $40.4 billion in personal guarantees from Oracle founder Larry Ellison after Warner questioned the financing of the bid -- Ellison's son, David, is Paramount's CEO -- and raised the fee it will pay if regulators block the deal to match Netflix's deal. Warner's board rejected the amended bid earlier his month, saying it remained "inferior" to the agreement with Netflix.
The pullback in Netflix stock could be a good opportunity to snap up shares. Barron's recommended buying the dip on Dec. 11, touting a relatively cheap valuation for a company that ought to continue growing its profit margin whether or not the deal gets done.
