Netflix (NASDAQ:NFLX) continues to slide, as worries mount regarding the massive outlay of cash it is seeking to spend to acquire Warner Bros. Discovery. All told, NFLX’s share price has lost roughly a quarter of its value over the past three months.
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Beyond the potential regulatory scrutiny the deal has attracted, Netflix has also been forced to contend with a rival attempt from Paramount Skydance. This has forced Netflix to revise its original proposal to an all-cash offer, one which would see the company take on billions in debt to finance the purchase.
Top investor James Brumley thinks these monetary concerns miss the bigger picture.
“In almost any business, being bigger makes it easier to continue growing while keeping competition in check,” argues the 5-star investor, who is among the top 1% of stock pros covered by TipRanks.
Brumley is fully aware that the proposed purchase of Warner Bros. is a big bet indeed. He notes that the Netflix offer – of $82.7 billion in cash – for the company’s streaming arm and studios is a lot to consider. (For context, Warner Bros. has guided for these businesses to deliver some $3.7 billion in EBITDA for 2025.)
And yet, he also points out that the market seems to be unduly focused on the glass half full. Brumley doesn’t buy all the doom and gloom.
“What if investors are underestimating the likelihood and degree of success that awaits?” he asks.
For instance, Netflix’s management believes it will be able to improve Warner Bros.’s EBITDA to $5.5 billion thanks to potential synergies. Not only does Warner Bros. possess “one of the film and television industry’s biggest and best studios,” but its IP library boasts the DC Comics franchises, the Harry Potter movies, and the Looney Tunes’ cartoons, among popular features.
While he acknowledges that the deal is “impossible to quantify,” Brumley ultimately believes that it will allow Netflix to further support its leading position in the streaming wars.
“Sometimes, investors must make an intuitive judgment call and trust that the company that essentially created the streaming industry knows what it’s doing now,” concludes Brumley. (To watch James Brumley’s track record, click here)
It seems like most of Wall Street is willing to give Netflix the benefit of the doubt as well. With 28 Buys and 10 Holds, NFLX enjoys a Moderate Buy consensus rating. Its 12-month average price target of $114.79 points to an upside approaching 38%. (See NFLX stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.