Netflix shares fall 4% as co-CEOs defend $83 billion Warner Bros deal

Netflix’s co-CEOs found themselves in an unusual position after the company’s latest earnings report: in the background.The streaming pioneer’s decision to pour nearly $83 billion into Warner Bros’ assets marks a significant departure from the company’s long-standing mantra: build, don’t buy.

Investors still aren’t buying it.Shares were already under pressure before Netflix made a bid for Warner Bros Discovery’s studio and streaming assets.

The stock, which has lost more than 15% since Netflix made its initial offer on Dec. 5, fell nearly 4% in early trading Wednesday as co-CEOs Ted Sarandos and Greg Peters found themselves having to explain their aggressive push that forced them to suspend share buybacks.

Sarandos noted how tech giants like Alphabet’s YouTube had changed the meaning of watching television, forcing Netflix to change course to keep up. The two said they did not expect to make a bid for Warner’s assets when they first began the due diligence process.

“When we came to attention, we saw several things that were just very exciting,” Peters says. Netflix is ​​trying to outpace Paramount Skydance with its $82.7 billion cash offer for Warner Bros’ film and television studios, extensive content library and major entertainment franchises including “Game of Thrones” and “Harry Potter.”

“We’ve debated building a theater business many times in our Netflix history, but we were busy investing in other areas, and it never became our priority. But now with Warner Bros, they’re bringing a mature, well-run theater company with great films, and we’re super excited about that addition,” he said, in a reversal of Netflix’s previous stance that theaters were an outdated model, with audiences preferring stay-at-home streaming.

“And then you get to the streaming side of things, HBO. It’s a great brand. It says prestige TV is better than almost anything. Customers know it. They love it. They know what it means,” Peters said, adding that Warner’s television studio was also a healthy business and complemented Netflix’s, expanding production capacity.

Investors are not convinced

With the expensive deal hanging over its head, Netflix delivered tepid revenue growth for what is typically one of its strongest quarters and forecast an equally bleak outlook for the new year.

While a strong content lineup, including the final season of the hit sci-fi series “Stranger Things,” has fueled revenue growth, high costs associated with the Warner Bros acquisition have left people concerned about the long-term payoff, analysts said.

Netflix previously said it had secured commitments for a $59 billion bridge loan to support Warner Bros’ deal. On Tuesday, it increased its bridge loan commitment by $8.2 billion to support its $27.75 per share cash offer.

The deal is expected to come under intense scrutiny from regulators and competition authorities as high-profile takeovers threaten to monopolize the market and give consumers fewer choices.

But Sarandos took steps on Tuesday to address those concerns, reiterating that the deal would be “pro-consumer” and “pro-worker,” and that the acquired companies would need new teams and provide more opportunities for creatives.

The deal “allows us to access 100 years of Warner Bros deep content and IP for development and distribution in more effective ways that will benefit consumers and the industry as a whole,” he said.