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Just For You
Netflix Stock Drops 35%+ After Q4 as WBD Deal Risk Rises
Authored by Leo Miller. Posted: 1/23/2026.
Article Highlights
- Netflix shares are in the midst of a huge drawdown that began in the middle of 2025.
- The company’s latest earnings didn’t provide a respite, sending shares even lower.
- With valuation multiples near an over two-year low, and analysts eyeing upside, is NFLX poised for a big recovery?
Entertainment giant Netflix (NASDAQ: NFLX) just reported its much-anticipated Q4 and full-year 2025 results. The stock closed down about 3% on Jan. 21 in reaction — the latest sign of souring sentiment around the once-favored name.
Since hitting an all-time split-adjusted high near $134 on June 30, 2025, the stock has been on a steep downward trajectory. After a ten-for-one stock split in November, which reduced the quoted price from above $1,100 to roughly $110, shares are down about 37% from their mid-2025 peak.
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The company has given investors plenty to consider. With growth expected to moderate and uncertainty surrounding its Warner Bros. Discovery (NASDAQ: WBD) acquisition, many market participants are taking a cautious stance. The stock now trades at its lowest forward price-to-earnings (P/E) ratio in more than two years.
Given the circumstances, should investors exercise caution around Netflix? Or is this an opportunity to capitalize on the stock’s precipitous decline?
Netflix Hits Its Marks in Q4, But Signals Growth Slowdown
In its latest quarter, Netflix posted solid results, but only marginally beat Wall Street forecasts.
Sales were $12.05 billion, up 18%, narrowly ahead of the $11.97 billion expected. Adjusted earnings per share (EPS) were $0.56 — a split-adjusted increase of more than 30% and $0.01 above estimates.
For 2026, Netflix guided to full-year sales of $51.2 billion at the midpoint, implying growth of roughly 13% — a deceleration from the company’s full-year 2025 growth rate near 16%. The company also expects free cash flow (FCF) of about $11 billion, roughly 16% growth.
If FCF grows near or modestly above that rate over multiple years, it could help justify the stock’s current valuation. However, as streaming becomes more competitive and less novel, sustaining high organic growth will be more difficult.
Accordingly, the company’s planned acquisition of Warner Bros. will play a major role in Netflix’s path forward as it seeks to convert new assets into higher revenue and profits.
WBD Deal: Netflix’s Big Splash Still Has Big Question Marks
Netflix is positioning the Warner Bros. deal as the growth accelerator the stock needs. During the earnings call, CEO Ted Sarandos said, “We’re working really hard to close the acquisition of Warner Bros. Studios and HBO, which we see as a strategic accelerant.”
Last quarter, these WBD segments generated about $5.28 billion in revenue and $1 billion in adjusted EBITDA. That would be a meaningful addition to Netflix’s trailing-four-quarter EBITDA of roughly $3.4 billion. Integrating WBD’s content and production capabilities could also boost engagement and subscribers, supporting higher long-term growth.
But Netflix is paying a steep price: the deal is valued at $82.7 billion, and the company recently amended its offer to an all-cash transaction. That increases the financial strain, since WBD shareholders won’t receive any Netflix stock as part of the deal. Netflix also said it would suspend share buybacks to help finance the acquisition, removing a key EPS tailwind after nearly $9.2 billion in repurchases in 2025.
Still, the biggest uncertainty is whether Netflix will actually acquire WBD. The transaction appears likely to face serious antitrust scrutiny, and regulatory approval is far from guaranteed. There’s also a considerable chance that Paramount Skydance (NASDAQ: PSKY) raises its offer above the current $30 per share, which could result in Netflix losing the deal.
Analysts Eye +35% Gains, But Uncertainty Shrouds NFLX
The consensus price target for Netflix currently sits around $121, implying roughly 41% upside.
Many analysts updated their targets on Jan. 21 after the earnings release. Price targets issued that day averaged about $117, which still implies strong upside of roughly 38%.
Although those targets suggest significant potential, the market remains cautious — likely because of acquisition risk and uncertainty about future earnings. While the near-term picture looks uncertain, the stock may be too cheap to ignore.
The stock’s forward P/E of about 27x is the lowest since October 2023, suggesting the shares are trading at a valuation discount.
If Netflix successfully closes the WBD transaction and integrates the assets well, the long-term benefits could be substantial, which skews the outlook for shares to the upside despite near-term risks.
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