Netflix (NASDAQ:NFLX) is a stock that I’ve wanted to add to my Stocks and Shares ISA for many years. I consider it one of the ones that got away.
In hindsight, I should have scooped up shares in 2022 when the share price crashed 70% in just four months. But I didn’t and it’s rocketed 360% since then.
As I write today (21 January) though, the Netflix share price is down 4%. This means the streaming giant has now lost nearly 37% of its value since June.
So, is this my chance to finally add the stock to my ISA?
Acquisition drama
With 325m paying subscribers worldwide, Netflix likely needs no introduction. You’d struggle to find many UK households that had not seen at least one of its hit shows — Squid Games, Stranger Things, Wednesday, Black Mirror, Adolescence, etc — in the past 12 months.
The stock’s decline largely relates to the ongoing Warner Brothers Discovery (WBD) acquisition saga, which took a new twist recently. In a bid to fend off a rival bid from Paramount Skydance, Netflix has switched its $83bn offer to an all-cash deal.
This has caused a lot of investor uncertainty — not just about whether any deal would get regulatory clearance, but whether it’s worth doing at all. After all, Netflix hasn’t needed to do many acquisitions in its history, and this is by far the largest.
The company wants WBD’s content library and film studios, including the HBO Max streaming service. Management says “Warner Bros.’ library, development and IP will allow us to provide an even broader and higher-quality selection of content for members“.
Meanwhile, the addition of HBO Max will allow the firm to offer personalised subscription bundles. However, the transaction would mean taking on significant debt, which obviously adds risk for shareholders.
Wall Street downgrades
Near-40% drops in Netflix stock are pretty rare, and I suspect I might come to regret not buying this dip.
Then again, this acquisition drama could drag on for a while, especially from a regulatory standpoint. Any bidding war could put even more downwards pressure on the share price.
I note the stock has been downgraded by a lot of Wall Street analysts today. Part of this probably had something to do with the streaming giant’s 2025 results, which were published yesterday.
Because despite solid numbers for last year, Netflix’s guidance for 2026 seemed to disappoint some investors. It’s forecasting revenue of $50.7bn to $51.7bn, representing 12%-14% growth. Last year it was 17% growth on a constant-currency basis.
Meanwhile, it expects an operating margin of 31.5%, which was lower than Wall Street was expecting (32.6%).
My move
The WBD acquisition is creating near-term uncertainty. But now trading at around 23 times forward earnings (for 2027), the stock looks cheaper than it has for some time.
Longer term, I remain bullish on Netflix. Last year, its ad revenue surged more than 150% to over $1.5bn. As the streamer moves deeper into live broadcasting, I expect this figure to increase dramatically over the next decade.
Meanwhile, the firm’s building out its cloud-based gaming options and expanding into video podcasts. Further out, I expect AI could materially cut content creation costs.
After weighing things up, I’ve decided to open a starter position in the coming days.
