Netflix may turn into an ‘entertainment giant,’ but its stock looks like ‘dead money’ to investors

So what’s behind the market’s unfriendly reaction?

The disconnect between Netflix’s ambition and its stock performance stems from a clash between long-term strategy and short-term financial realities, according to two entertainment analysts and a corporate lawyer specialized in big takeovers. While Netflix is still profitable and aggressively expanding its content library and advertising infrastructure, the market is fixated on shrinking margins and that aforementioned big deal—specifically the uncertain costs of a potential acquisition of Warner Bros.

Melissa Otto, head of visible Alpha Research at S&P Global, was blunt: “It could be dead money until we get a meaningful catalyst.” This means she sees Netflix’s recent trading down from the $109 range, before the Warner deal was announced, to the low $80s, as the market repricing the big reader streamer, meaning it will likely trade “range bound” for the foreseeable future until the narrative changes. Another outside-the-box hit like Stranger Things or Squid Game wouldn’t be a catalyst to her, she explained: “What we would like to see is how a deal with Warner Brothers is going to drive earnings growth and fuel cash flow generation.”

Other analysts are more bullish on the stock but are forced to admit that Otto’s take largely speaks for investors. “I think what has upset the Street is the content spend plus, you know, changing the offer for Warner to all cash,” noted analyst ARK Invest’s Nick Grous, referring to Netflix’s all-cash deal amendment in the Warner sweepstakes, along with its plan to boost content spending. ARK, which typically focuses long-term, is “excited” with where Netflix is headed, he added. “From our standpoint, especially if they’re able to close the Warner acquisition, I think you really are looking at an entertainment giant.”

Otto said the Street isn’t moved. Netflix is probably a “deal stock” to investors now, meaning its fundamentals likely matter less than the outcome of the merger negotiations.” “The whole investment thesis right now is a snoozer until we get more clarity around the deal.”

Netflix did not respond to a request for comment.

‘The market is a fickle beast’

On the deal, Anthony Sabino of St. Johns law school in Queens, New York, said he was excited about the next phase of what he previously told Fortune was one of the most interesting M&A deals of the year. Crowing that “cash is king in America, always will be, God willing,” Sabino said it also sent a big message to investors: “I’m sure it was quite a gargantuan effort by Netflix to say, ‘Okay, listen, we’re going to go from cash-stock to all-cash.” He noted this leveled the playing field with the rival offer from Paramount, whose biggest weapon had been the cash consideration. “Cash is king and you can’t question that. Cash is cash.” On the other hand, he said—while noting that he’s just a “plain old country lawyer” and not an investment analyst—”the market is a fickle beast, it’s a fickle herd.”

Sabino said he thinks some of the market is a bit worried about the move to all-cash, and “nobody has that cash sitting around.” This means Netflix will have to finance the bid somehow, meaning debt, and Netflix has already announced that it’s discontinuing its share repurchase program, which current investors probably don’t want to hear. It all boils down, in his telling, to that sentiment: Netflix shareholders saying “Wait a minute, how much are we going to go into hock to buy these guys?” The bottom line is the market looks at this adversely.

The magic margins question

Beyond the acquisition drama, investors were rattled by Netflix’s forward guidance, said S&P Global’s Otto. The market expected profit margins around 32.75% but the company guided closer to 31.5%—a stark change from the progress Netflix has made over the past few years.

“They had this really great profitability story, taking their margins from basically 18% to essentially 30% in a couple of years,” Otto said, noting that Netflix pulled it off while also delivering a steady output of must-watch content and growing its revenue. Unfortunately, she said, that narrative has been slipping away for the last few quarters. “When that story starts to feel like it’s fully priced-in, or slowing down, or there’s uncertainty around it, that’s probably going to spoil the market,” said Otto.

Grous agreed that the Street is skittish about margins, with Netflix’s shrinking guidance indicating a return to the company’s pre-COVID penchant for hefty spending, with content costs trending towards $20 billion this year and “no signs of slowing down.”

That wasn’t the only throwback for investors accustomed to Netflix’s recent track record of non-stop growth in users and revenue. The latest earnings call, and some of the analyst questions, had a pre-pandemic vibe, Grous said, with a big focus on time spent on platform and on how mature Netflix has become as a company, i.e., not offering huge growth anymore. This is happening because investors have to infer growth off the plateauing of engagement, as Netflix has stopped reporting subscriber numbers, he said.

Still, Grous said he saw strength in other parts of the business during the quarter. He highlighted the greenshoots around advertising as well as what he sees as Netflix’s ace-in-the-hole: the live business. The company has seen success with boxing matches and celebrity roasts, and Grous pointed to a recent example of Netflix thinking creatively in this area: the livestreaming of a death-defying skyscraper climb by Alex Honnold. “I think Live is going to be an increasingly large part of the story for them,” and that should be exciting, Grous said.

How long will Netflix be a deal stock?

The most important story for Netflix in the short term however is not about programming or the stock market—it’s about the “purest essence of capitalism,” said St. Johns law school’s Sabino, pointing to the bidding war for Warner Bros.

Netflix’s recent move to make its offer all-cash has turned up the heat, and there’s the potential of a “white knight”—someone who is neither Netflix nor Paramount—riding onto the scene to scoop up the Warner Bros prize. That white knight could be none other than Barry Diller, the former Paramount CEO who was indirectly involved in the creation of Time Warner in the 1980s, and was directly involved in a bidding war for Paramount in the 1990s. The Wall Street Journal reported this week that Diller had expressed interest in acquiring CNN from Warner last year but was rebuffed. According to the report, Diller remains interested in the news network, an asset of the Warner Bros portfolio that Netflix has never shown any interest in.

In other words, the Netflix-Warner takeover saga could have a lot of room to run, and from the bearish Melissa Otto’s perspective, that’s just bad news for investors looking at this deal stock. Until there is transparency regarding the debt structure of the WBD deal and proof that the new ad-supported model can optimize cash flow, the stock may remain stagnant, she warned. “Investors aren’t really tastemakers … They just want to see what’s going to ultimately translate into earnings growth.”

Editor’s note: the author worked at Netflix from June 2024 to July 2025.