Netflix Inc (NFLX) Common Stock US$0.001

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Warner Bros. Discovery informed Netflix that it had formally recognised Paramount Skydance’s latest all‑cash offer as the superior proposal.

Following that notification, Netflix declined to raise its bid and has effectively withdrawn from the acquisition process.

Netflix will receive a $2.8bn termination fee.

The shares were up 8.5% in after-hours trading.

Our view

Netflix has declined to match Paramount’s improved offer in the battle to acquire Warner Bros., removing a meaningful overhang that had weighed on shares. While we saw scope for Netflix to push its bid higher, the decision to walk away likely reflects a mix of capital discipline and caution around how involved the White House and regulators might ultimately have become.

With the deal now off the table, focus returns to the underlying business. Fourth quarter results were strong, but markets were more interested in the outlook, which points to higher costs and softer profit growth than expected. We understood the reaction, but the higher costs are largely linked to increased investment in content, which remains central to driving engagement.

This is a key area to watch, particularly as platforms like YouTube continue to take a growing share of viewing time. New content should, in theory at least, broaden its appeal and keep users on the platform for longer. Time will tell whether this drives the desired growth in engagement.

Netflix continues to perform well across most key metrics. Its ability to reduce churn is firmly rooted in its best-in-class original content, which consistently keeps viewers engaged for longer. While this content is expensive to produce, the business is highly cash generative, giving Netflix the flexibility to fund higher investment.

The ad-supported tier is also gaining traction, proving more popular than many had expected. It allows Netflix to enter new markets and reach users priced out of the fully paid service. While still relatively small at around £1.5bn of revenue in 2025, this figure is expected to double next year.

Internationally, Netflix retains a clear edge through its production and distribution network. Executing localised content well is difficult, but the group has built an enviable track record. This matters because longer-term subscriber growth will increasingly come from emerging markets.

Acquiring Warner Bros. would have strengthened Netflix’s content engine and offered some defensive benefits, but it would also have been a costly way to address engagement concerns. With up to $70bn essentially back on the table, buybacks can return (though not guaranteed), but the question now is how and when that capital might be deployed to drive growth.

All in, Netflix remains a market leader and a high-quality business, with a valuation that still implies long-term upside. While 2026 is shaping up to be a year of higher costs and tougher optics, the removal of acquisition noise relieves some pressure. We have one eye on AI as a potential long‑term disruptor, and weak viewer loyalty across streamers remains an ongoing risk.

Environmental, Social and governance (ESG) risk

The media industry’s ESG risk is relatively low. Product governance is the key risk driver, alongside business ethics, labour relations and data privacy & security.

According to Sustainalytics, Netflix’s management of material ESG issues is average.

Netflix has to comply with significant and often complex regulations and laws, across a very large number of different countries. The group has a global anti-corruption policy, but this is not publicly disclosed, making its effectiveness difficult to assess.

There are both internal and external audits on IP infringement risk, as well as its independent ethics hotline available for employees. Cybersecurity issues are addressed by the audit committee. But it’s unclear there is any managerial or board-level responsibility for privacy management.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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