Netflix Stock Tanks 39% — Is It Too Cheap to Ignore?

Netflix (NFLX) dropped 39% from its mid-2025 peak to around $82 due to its $82.7B Warner Bros Discovery acquisition attempt.
Netflix delivered 29.5% operating margin in 2025 and guides to 31.5% for 2026. Ad revenue is expected to roughly double to $3B.
The DOJ expanded its Netflix antitrust probe beyond merger review to examine broader anticompetitive practices and monopoly power.
Investors rethink ‘hands off’ investing and decide to start making real money

Netflix (NASDAQ:NFLX) won the streaming wars that exploded after the pandemic, outlasting a surge of competitors to stand as the only major service delivering consistent profits. While rivals like Disney (NYSE:DIS) bled red ink, Netflix grew subscribers to over 325 million paid memberships and boosted margins through ad tiers and password crackdowns. But this dominance feels squandered amid its attempted acquisition of Warner Bros. Discovery (NASDAQ:WBD), which has tanked the stock 39% from its mid-2025 peak near $134 per share.

Now trading around $82 — its lowest since late 2024 — the depressed price begs the question: Is Netflix too cheap to pass up?

Netflix’s valuation metrics suggest undervaluation relative to its past. The current trailing price-to-earnings ratio stands at approximately 32, below recent historical averages that have often exceeded 40 to 45. Forward P/E estimates for 2026 hover around 21, implying room for upside if growth holds and uncertainties resolve. This compression reflects market unease over the deal, but it positions the stock at a discount not seen in recent years.

Underpinning this appeal are robust profitability trends. Netflix delivered a full-year 2025 operating margin of 29.5%, up significantly from prior years, with the fourth quarter at 24.5%. Guidance targets 31.5% for 2026, reflecting continued efficiency gains from ad revenue growth — expected to roughly double to around $3 billion — and content optimization. These figures far surpass historical averages that hovered in the low teens or single digits a decade ago. Free cash flow remains strong, supporting investments without excessive dilution. These trends paint a healthier operation primed for returns.

Yet context matters — all is not equal. The Warner Bros. deal clouds valuations, introducing variables that could erode shareholder value. While pure metrics say “buy,” integration uncertainties demand caution.

Netflix’s amended all-cash offer values the movie studio and streaming assets of Warner Bros. Discovery at an enterprise value of $82.7 billion (with an equity value of $72 billion) and pays $27.75 per WBD share.

Financing mixes cash reserves, credit lines, and committed debt from banks, adding significant leverage to Netflix’s balance sheet. Regulatory nods from the Justice Dept. and EU Commission are pending, with a potential close in mid-to-late 2026 or into 2027 following Warner Bros.’ spin-off of its Global Networks as Discovery Global.

Netflix must also fend off Paramount Skydance‘s (NASDAQ:PSKY) hostile $30-per-share bid for all of Warner Bros. Discovery, worth $108.4 billion, which the movie studio’s board has rejected multiple times as inadequate. Yet merging a data-driven streamer with Warner Bros.’ legacy studio culture — spanning films, TV, and HBO — poses operational clashes, from content pipelines to talent management.

Recent developments heighten the risks: The DOJ has broadened its antitrust probe beyond standard merger review, issuing civil subpoenas to scrutinize Netflix’s broader practices for potential anticompetitive conduct and monopoly power under Section 2 of the Sherman Act. This includes questions on exclusionary behavior, impacts on competition for talent, and whether Netflix has engaged in tactics that entrench market dominance.

The investigation remains in early stages, with Netflix stating it is unaware of any probe outside standard merger review and is constructively engaging with regulators. Senate hearings have also examined the deal’s effects, adding political scrutiny.

Valuation alone can’t dictate a buy amid so many unknowns. The DOJ’s expanded probe, ongoing rival bids, regulatory timelines, and potential breakup fees create substantial uncertainty. Mega-mergers have historically destroyed value more often than created it, with integration failures, added debt, and conditions dragging returns.

Netflix looks cheap on fundamentals, but prolonged battles, a failed deal, or adverse rulings could push shares lower still. Investors would be better off waiting for greater clarity on whether Netflix wins the acquisition battle (which would make its stock a hard “no” for me) before diving in.

For more than a decade, the investing advice aimed at everyday Americans followed a familiar script: automate everything, keep costs low, and don’t touch a thing. And increasingly, investors are realizing that being completely hands-off also means being completely disengaged.

That realization hits like a lightning bolt when you realize not just how much better your returns could be, but that there are amazing offers like one app where new self-directed investing accounts funded with as little as $50 can receive stock worth up to $1,000.

Take back your investing and start earning real returns, your way.