With shares up by only 3.7% over the last 12 months, Netflix (NFLX 0.27%) stock has deeply underperformed the tech-heavy Nasdaq Composite, which has risen by almost 18% over that time frame.
This disparity is probably because the streaming giant is less exposed to the generative artificial intelligence (AI) megatrend, which has boosted the growth and valuations of other big tech companies. Investors are also nervous about its plan to acquire Warner Bros. Discovery, which (if the deal gets to the finish line) could weaken its balance sheet. Let's explore what 2026 might have in store.
NASDAQ: NFLX
Key Data Points
Business is booming
Video streaming may look like old news in big tech, but Netflix's third-quarter results show there is plenty of room for further expansion. Revenue jumped 17% year over year to $11.5 billion, driven by strength in core markets like the U.S. and U.K. The company has seen massive success this year with original programming and sports events such as the Canelo Álvarez vs. Terence Crawford boxing match, which was the most-viewed men's championship fight of the century (with 41 million viewers). The platform followed that up with the Jake Paul vs. Anthony Joshua fight, which drew 33 million views.
Sports like boxing have traditionally relied on a pay-per-view model, where cable subscribers pay a flat fee for access to each specific contest. Netflix has convincingly disrupted this business model, creating a huge revenue opportunity and enhancing its economic moat in the process.
Netflix also has plenty of room to attract a larger audience to its library of original movies and TV shows. The company's large content budget will allow it to compete in emerging markets like India, the Asia Pacific region, and Latin America. And while the North American and Western European markets are mature (in terms of subscribership), it still has plenty of room to generate more revenue per user by selling more advertising space. Analysts at J.P. Morgan estimate that this business could grow to be worth a whopping $4.2 billion in 2026.
The Warner Bros. bid spooked the market
Image source: Getty Images.
Netflix made a splash in early December when it agreed to buy most of Warner Bros. Discovery for an enterprise value of $82.7 billion (this includes both debt and equity). The deal will give Netflix access to Warner Bros.' subsidiaries like HBO alongside iconic franchises like Harry Potter, the DC Universe, and The Lord of the Rings -- supercharging the combined companies' video library and opening up opportunities for Netflix to create more original content based on established intellectual property.
Netflix expects the deal to close in 12 to 18 months. But the market has responded poorly to news of the deal, sending Netflix stock down around 5.5% since the announcement. The company has also received negative analyst attention, including a downgrade from CFRA, which has shifted Netflix from a buy to a hold based on the increased debt load the purchase would leave it with, as well as the regulatory challenges the deal may face.
There is some cause for concern. While acquisitions often sound great on the surface, they frequently don't deliver sustainable shareholder value. According to the 2004 book Mastering the Merger, written by a pair of Bain & Co. execs, a whopping 70% of acquisitions fail to achieve the results that the buyers promise because of their often inflated costs and the challenges of integrating different corporate structures.
That said, the Netflix-Warner Bros. deal might perform better than most because of the similarities between the two businesses. Much of Warner Bros.' value derives from intangible intellectual property such as film franchises, which can be easily integrated into Netflix's streaming and content creation model. The combined company may also achieve substantial savings through layoffs if the deal closes as planned.
Is Netflix a buy in 2026?
With a price-to-earnings (P/E) ratio of 38, Netflix's valuation is quite high considering the uncertainty surrounding its acquisition plans. But on the whole, the company looks like a buy because of its solid growth prospects and its likely ability to successfully integrate Warner Bros. into its existing operations.
