It's difficult to imagine a stock surging after a failed acquisition. But that is exactly what happened with Netflix (NFLX 0.06%) last Friday. Shares of the streaming specialist jumped nearly 14% after the company officially walked away from its $83 billion bid for Warner Bros. Discovery's (WBD 0.70%) studio and streaming assets.
For months, investors were spooked by the prospect of Netflix taking on significant debt and the operational complexities of a legacy Hollywood studio. But with management opting for price discipline over ego, the market breathed a sigh of relief.
With the stock rebounding sharply to about $96 per share, many investors are likely on the hunt, trying to decide whether this is a buying opportunity. After all, the underlying business has great momentum, so it's a good time to look at the stock.
Image source: Netflix.
A disciplined decision
The biggest takeaway from last week's dramatic fallout is Netflix's commitment to its core model.
Co-CEOs Ted Sarandos and Greg Peters did not hesitate to back out when a rival raised its bid to $111 billion.
"We believe we would have been strong stewards of Warner Bros' iconic brands, and that our deal would have strengthened the entertainment industry and preserved and created more production jobs in the U.S." the co-CEOs said in a joint statement last week. "But this transaction was always a 'nice to have' at the right price, not a 'must have' at any price."
Instead of overpaying, the company is walking away and committing to continue investing in its own business.
"Netflix's business is healthy, strong and growing organically, powered by our slate and best-in-class streaming service," the co-CEOs said in a Feb. 26 press release. "This year, we'll invest approximately $20 billion in quality films and series and will expand our entertainment offering."
Additionally, Netflix said it is resuming its share repurchase program.
This judicious capital discipline reflects a culture of measured investment decisions, a key pillar of the company's long-term growth story -- a discipline that has helped it get to where it is today.
Strong business momentum
Looking at the core business, Netflix's recent fourth-quarter results were exceptional. Revenue rose 18% year over year to more than $12 billion. This robust top-line performance, driven by higher pricing and increased advertising revenue, helped fuel meaningful operating leverage. The company's operating margin expanded from 22.2% in the year-ago quarter to 24.5%.
Further, management expects this growth to continue. Netflix forecast 2026 revenue to reach $50.7 billion to $51.7 billion, representing 12% to 14% year-over-year growth. While the main drivers of Netflix's business remain its pricing and subscriber growth, its advertising business is worth noting, too. Ad revenue grew more than 2.5 times in 2025. And management expects this small but fast-growing, high-margin segment to roughly double again to about $3 billion in total revenue this year.
Under the surface, the company's product progress has also been encouraging. Total view hours globally increased 2% year over year in the second half of 2025. More importantly, management noted that viewing of its branded originals rose 9% over the same time frame -- an acceleration from 7% growth in the first half.
This momentum in its branded originals is important because it accounts for about half of the platform's overall viewing hours, management explained during the company's most recent earnings call.
NASDAQ: NFLX
Key Data Points
Time to buy?
Of course, there are risks. Not only is the competitive environment intense, with deep-pocketed peers willing to bundle their streaming services with other offerings, but Netflix's global reach exposes it to macroeconomic risks.
Still, Netflix is a formidable business in its own right -- big enough to throw its own weight around. The streaming giant just crossed 325 million paid memberships and generated $9.5 billion in free cash flow in 2025.
Valuation, however, is a concern. Following last Friday's jump, the stock trades at about 38 times trailing-12-month earnings. At this multiple, there's a lot of optimism priced in. Investors are arguably assuming the company's advertising business will ramp significantly and that subscriber additions will remain steady for years to come. While these are reasonable assumptions, they leave little room for any slip-ups.
Ultimately, the decision to abandon a costly legacy media acquisition was a smart move -- and one that helps the bull case. It was nice to see management demonstrate such strong capital allocation discipline.
But does that make the stock a buy right now? Unfortunately, the valuation arguably prices in too much perfection -- especially after the stock's big move higher on Friday. I'd stay on the sidelines for now and hope for a better entry point.
