Buy the Dip: Netflix's Warner Bros. Deal Makes This a Compelling Long-Term Trade

Hook & thesis

Netflix has been sold off into a clear support zone: the stock is trading around $76.97, virtually brushing the 52-week low of $75.23. The market's current nervousness centers on the $82.7 billion Warner Bros. acquisition and the debt load and integration risks that come with it. Those concerns are real, but they are largely priced in. From a capital-allocation and cash-flow perspective Netflix still looks healthy: free cash flow is $9.46 billion, return on equity sits above 40%, and leverage (debt-to-equity 0.54) is moderate for a media company pursuing scale.

My thesis is simple: this is a buyable dip for investors willing to hold through deal-related volatility. The acquisition provides long-term content leverage and $2-3 billion of run-rate cost savings cited by management; combine that with Netflix's subscription + advertising growth initiatives and you have a path back to multiple expansion. I recommend accumulating at $76.00 with a stop at $73.00 and a primary target at $110.00 over the next 180 trading days.

What Netflix does and why the market should care

Netflix operates a global streaming platform delivering video entertainment, video games, podcasts and related live events. The business generates recurring subscription revenue and growing ad-supported revenue. For shareholders, what matters is three-fold: subscriber engagement and growth, content economics (owning versus licensing), and free cash flow generation. Owning a deep library of intellectual property turns content spending into an asset that can be monetized across platforms — a clear rationale behind the Warner Bros. acquisition.

Data-backed fundamentals

Here are the concrete numbers underpinning the buy case:

• Market capitalization: $324.5 billion.
• Free cash flow: $9.461 billion — meaningful cash generation to service debt and fund content.
• Return on equity: ~41.26% — indicates high incremental returns on capital.
• Debt-to-equity: 0.54 — leverage is material but not extreme relative to the acquisition size.
• Valuation: trailing P/E near ~30 and price-to-free-cash-flow ~34.3 based on current metrics.
• Technical setup: RSI ~27.6 (oversold) and the stock trades well below its 10-, 20- and 50-day averages, signaling capitulation risk but also a potential mean-reversion point.

Put together: Netflix still prints cash, the business earns strong returns on capital, and valuation multiples have compressed sharply from the $134 52-week highs. That combination sets the table for a recovery if deal execution and subscriber trends stabilize.

Valuation framing

At a market cap of roughly $325 billion and enterprise value near $330 billion, Netflix's EV/EBITDA is about 8.7x. For a company that generates nearly $9.5 billion in FCF, the current market price reflects a significant haircut from prior optimism but not a distressed valuation. Price-to-free-cash-flow of ~34x is elevated versus other media incumbents, but remember that Netflix's business is highly recurring and scalable: owning Warner Bros. franchises can turn content spending into higher-margin revenue streams over time.

Valuation should be seen through a conditional lens: if management delivers the cited $2-3 billion of annual cost savings and preserves subscriber momentum through better monetization, the multiple should re-rate higher. The market has already priced in the worst-case integration fears; what remains is execution.

Catalysts (what will move the stock)

• Q4 / full-year results (expected 02/26/2026) - subscriber and revenue mix metrics will drive sentiment.
• Regulatory and deal milestones tied to the Warner Bros. acquisition - progress, approvals or unexpected concessions will materially impact perceived deal risk.
• Evidence of synergy realization - early signs that the $2-3 billion cost savings are on track (content rationalization, consolidated marketing, platform rationalization).
• Ad product and revenue traction - pick-up in ad-supported ARPU or new advertiser cohorts.
• Macro stability and broad market risk appetite - risk-on periods should favor high-quality growth names with clear cash generation like Netflix.

Trade plan - actionable and horizon-specific

Primary recommendation (long-term): Buy Netflix at an entry price of $76.00. Target $110.00 within a long-term window of 180 trading days (about 6-9 months). Place an initial stop-loss at $73.00 to limit downside if the market decides to retest the 52-week low and sentiment deteriorates further.

Horizon-specific notes:

• Short term (10 trading days): Expect volatility around headlines; if you prefer a quick scalp, look for a pullback to $74.00 with a short-term target of $82.00 as RSI mean reverts and intraday momentum recovers.
• Mid term (45 trading days): The tender/approval cadence and early-quarter metrics should become clearer. If you hold to this horizon, tighten stops to breakeven once the stock reaches $90.00 and reassess on synergy commentary out of management.
• Long term (180 trading days): This is my preferred horizon. The integration takes time; allow the market to digest synergy realization, ad revenue progress and content monetization. Target $110.00 as a realistic intermediate upside that reflects partial re-rating and improved cash flow conversion.

Why this trade works

Two complementary dynamics converge: first, a near-term sentiment-driven decline (deal anxiety and activist noise) has pushed the stock toward support. Second, the underlying business remains cash-generative and capable of funding the deal’s obligations. If Netflix can secure $2-3 billion of cost savings annually and monetize Warner Bros. IP selectively, the company’s economics improve materially — justifying a higher multiple than today’s depressed levels.

Risks and counterarguments

Any buy recommendation must be paired with honest failure scenarios. Key risks include:

• Deal execution risk - integrating a giant content company is complex; failure to hit the $2-3 billion cost-savings target would materially pressure free cash flow and multiples.
• Financing and leverage risk - although debt-to-equity is moderate today (0.54), the acquisition could push leverage higher if Netflix raises additional debt or issues equity, diluting returns.
• Regulatory and takeover noise - activist opposition and a competing bid (Paramount’s motion with a ticking fee) create near-term uncertainty. A messy process could suppress the stock for longer than expected.
• Subscriber growth and monetization miss - if global subscriber growth stalls or ad-supported ARPU disappoints, revenue and margin assumptions will need to be reset.
• Macro and market multiple compression - in a risk-off environment even high-quality growth names can see multiple compression; that would hurt returns even if fundamentals remain stable.

Counterargument: The market is justified in demanding a discount given the size of the transaction and the near-term hit to balance-sheet flexibility. One could reasonably argue that waiting for clear synergy proof points or a stabilized earnings print is the safer approach. That is a valid view; if you are risk-averse or unwilling to tolerate headline-driven swings, waiting for post-acquisition clarity and a confirmed trend in subscriber and cash-flow metrics is prudent.

What would change my mind

I would reduce exposure or abandon the long stance if any of the following occur: a) management discloses material upward revisions to the expected debt required or equity issuance greater than 5% of market cap; b) the company explicitly says synergy estimates are delayed or halved; c) subscriber metrics roll over materially (consecutive quarterly NRR erosion or subscriber losses in key geographies); or d) macro conditions force a widespread re-rating of media multiples that compresses EV/EBITDA below 6x persistently.

Conclusion

Netflix at about $77 is a disciplined buy for investors with an appetite for deal-related volatility. The combination of strong free cash flow ($9.46B), high returns on equity (~41%), moderate leverage and a plausible $2-3 billion synergy pathway makes the risk-reward skewed in favor of buyers willing to hold through integration noise. Entry $76.00, stop $73.00, target $110.00 over roughly 180 trading days is a concrete, actionable plan that balances ambition and risk control. If the company demonstrates early synergy traction and subscriber stability, the path to the target becomes straightforward; if not, risk controls are in place to limit losses.

Trade summary: Buy at $76.00, stop $73.00, target $110.00. Long-term horizon (180 trading days).