Netflix (NFLX.US) performance opens the curtain on the earnings season of tech giants! Warner's acquisition battle is in full swing, and it's a "moment of truth" for fundamentals.

Although the discussions surrounding the stock market revolve mainly around the high-priced bid by global media giant Netflix (NFLX.US) for another streaming company Warner Bros. Discovery Inc. (WBD.US), Wall Street institutional investors will have the opportunity to focus on other aspects, at least temporarily, after the release of the latest financial data following Netflix's closing on Tuesday after eastern time. For example, supporting Netflix's close to $400 billion market value is the strong profit growth expectations. Wall Street analysts generally believe that this streaming giant is likely to demonstrate stronger performance resilience in the face of macroeconomic uncertainties. With the release of Netflix's financial report, the earnings season for U.S. tech giants will commence, and as global stock markets hit new highs driven by loose monetary policies and the AI boom, the actual performance strength and future outlook of tech giants that command high weightings on the Nasdaq Composite Index and the S&P 500 Index are crucial for maintaining their trajectory of repeated highs. The latest news indicates that streaming giant Netflix has reached a modified all-cash agreement to acquire Warner Bros. Discovery's film studio and streaming business, while continuing to compete with Paramount Skydance Corp. for this iconic Hollywood entertainment giant. The pricing trajectory of the market leader Netflix will shift from the acquisition to focus on Netflix's fundamentals. Investors have long been concerned about the slowing growth of Netflix's streaming user subscription scale and the sustainability of its strong revenue growth. These two important fundamentals triggered the most severe selling wave of Netflix's stock in three years after its performance and future outlook were disclosed on October 21 last year. Since then, Netflix's stock price has fallen significantly by 29% - partly due to growing concerns in the market that the over $80 billion acquisition of Paramount Skydance may lead to Netflix's debt expansion. At the time, Netflix was seen as a potential major buyer for Warner Bros. Now, with the $82.7 billion all-cash acquisition deal on the table, some investors are increasingly concerned, with all risks amplified. However, some investors see this continued selling as an important buying opportunity at a low point. Regardless of whether this large transaction is completed, I remain optimistic about Netflix," said Eric Clark, Chief Investment Officer of Accuvest Global Advisors, arguing that the core logic behind Netflix's stock price decline has been overly interpreted by the market. "I don't think there's any scenario that can stop funds from flowing into Netflix stocks." On Tuesday morning, Netflix raised its bid for Warner Bros. through an all-cash transaction, having previously agreed to use a mix of cash and stock. During pre-market trading on Tuesday, Netflix's stock price rose by 1%, while Warner Bros.' stock price fell slightly by 0.3%. As shown in the chart above, Netflix's stock price has erased almost all gains from last year. According to Wall Street analysts' general expectations, the California-based streaming giant is expected to report earnings of $0.55 per share for the fourth quarter, representing a year-over-year growth of 28%, with expected revenue of approximately $12 billion, representing a year-over-year growth of 17%. However, Wall Street analysts generally expect that Netflix's revenue growth rate will significantly slow down in the next three quarters, before rising again in 2027. "Is someone joking? There's no way that this earnings report will divert investors' ongoing attention to Netflix's long-term fundamental issues," wrote Daniel Kurnos, an analyst at Benchmark Co., in a report on January 13. "But it might remind people of Netflix's solid fundamentals and the operational leverage of the upcoming 'TV interconnected' golden years." Kurnos has a "hold" rating on Netflix's stock, expecting the company to provide strong revenue and operating profit outlook by 2026, which may provide a brief respite for bullish investors, moving away from the market's overemphasis on the acquisition. He believes this "love triangle" of an acquisition won't end soon and will only become more complicated after it's complex. He also expects Netflix's international market revenue growth to accelerate, pointing out that the company's advertising partnership with Amazon.com, Inc. is a positive fundamental growth logic. "Given Netflix's incredibly strong content lineup, the company may have had a strong fourth quarter," wrote Geetha Ranganathan, an analyst from Bloomberg Intelligence in a research report last week, specifically highlighting the final season of the science fiction horror series "Stranger Things," the boxing match between Jake Paul and Anthony Joshua, and NFL games during the Christmas period. However, if revenue data falls short of expectations, "it will exacerbate concerns about the company's structural growth, especially against the backdrop of the blockbuster deal with Warner Bros.," she added. With increasing future uncertainty, investors will closely monitor the company's operating profit margin outlook for this year, says analyst John Blackledge from TD Cowen. He expects Netflix's paid net subscribers to increase by 14.2 million this quarter, lower than last year's approximately 19 million, but higher than the market's general expectation of about 11 million. Meanwhile, the acquisition saga with Warner Bros. is ongoing. Netflix is reportedly making changes to the deal terms, including an all-cash acquisition agreement. These latest changes are aimed at expediting the acquisition process and addressing the acquisition pressure from competitor Paramount Skydance Corp. "Regardless of how the merger process unfolds, Netflix may ultimately come out as the winner," wrote Kurnos from Benchmark. He remains optimistic about this merger combination, believing it will create a "dominant player in the market for film and streaming, particularly in pricing and user interaction and engagement." However, if Netflix fails to successfully acquire Warner Bros., "this may appease investors not interested in the deal, as the media industry's track record of mergers has been poor," potentially driving Netflix's stock price higher due to increased debt pressure and cash flow expectations. However, for some institutional investors, the massive bidding for Warner Bros. poses too much risk and is too expensive for a streaming company that has historically not achieved significant growth through acquisitions, and for a streaming company that would bring in substantial debt through an acquisition. "I have completely lost interest in the financial report," said Vikram Rai, portfolio manager and macro trader at First New York, noting that Netflix was a long-time favorite stock of his, but the latest acquisition plans have turned him bearish, leading him to sell his Netflix shares a few weeks ago. "If Netflix's stock price rebounds, I would choose to short it." Netflix modifies Warner Bros. deal to all-cash bid According to the latest reports from the media, Netflix has reached a modified all-cash transaction agreement to acquire Warner Bros. Discovery's film studio and streaming business as part of its competition with Paramount Skydance Corp. to acquire one of Hollywood's most iconic entertainment and film companies. Netflix previously agreed to acquire Warner assets for $27.75 per share in cash and stock, but will now pay the full amount in cash, according to a document confirming terms previously reported by the media. Warner Bros. plans to convene a special shareholder meeting to approve the transaction. Netflix states that shareholders will have the opportunity to vote on the transaction by April. These changes are aimed at expediting the acquisition process and responding to criticism from Paramount Skydance, which argued that its $30 per share all-cash acquisition offer - including cable television channels such as CNN and TNT - is more advantageous. Paramount Skydance, now the parent company of CBS and MTV, has been urging Warner shareholders and investors to hand over their shares. This unprecedented bidding war for Warner Bros. is the largest media industry transaction in Hollywood in recent years and could reshape the streaming and film entertainment industry. Paramount has been actively pursuing Warner Bros. since September of last year, while streaming giant Netflix unexpectedly became a potential buyer after Warner Bros. announced its sale in October last year. The new terms eliminate one of Paramount's major criticisms of Netflix's previous proposal, which was that the stock acquisition component made its bid look inferior. "We continue to support and unanimously recommend the deal we initiated, which we believe will deliver the best outcome for shareholders, consumers, creators, and the broader global entertainment community," said Netflix co-CEO Ted Sarandos in a statement. Warner Bros. has also addressed another criticism, clarifying how to evaluate its cable TV networks, which will be split into an independent company called Discovery Global. Warner Bros. has rejected multiple offers previously made by Paramount. Paramount initiated a hostile takeover and threatened a proxy fight, and sued Warner Bros. demanding more disclosure about Netflix's acquisition proposal and the value of cable TV assets. Financial advisors to Warner Bros. expect the overall value of these cable TV network operations to range from $0.72 to $6.86 per share, according to disclosed documents. Paramount, on the other hand, claims that these assets have no value, even though cable TV networks represent the largest share of its own sales and profits. Under the split plan, by June 30, 2026, Discovery Global will have $17 billion in debt, which will decrease to $16.1 billion by the end of the year. Netflix and Warner Bros. have also amended the agreement to reduce Discovery Global's debt by about $260 million, citing strong cash flow in the previous year exceeding expectations. The documents project $16.9 billion in revenue for Discovery Global's network category by 2026, with adjusted EBITDA of $5.4 billion. For Netflix, successfully acquiring Warner Bros. will bring an incredibly vast IP library If Netflix and Warner Bros. merge, they will combine the world's two largest streaming providers, with approximately 450 million joint subscribers, and provide Netflix with an extremely rich IP library to compete against global giant IP competitors such as Disney and Amazon.com, Inc. Hollywood unions and cinema owners have expressed concerns that this large-scale acquisition may harm their members' profits and business growth. For Netflix's streaming platform, which is most dependent on revenue, successfully acquiring Warner Bros. (including "non-linear assets," including Warner Bros. Pictures and TV studios and HBO and HBO Max and their libraries under this deal) essentially means Netflix will upgrade from a "simple platform-type streaming media" to a "one of the largest streaming platforms + top-tier studios + super library/IP" integrated giant, turning high-value content that has long needed to be procured/licensed externally into long-term assets that can be self-controlled, thus gaining a significant advantage in the "streaming wars." For the global streaming giant Netflix, which already possesses a wide range of popular IPs, swallowing Warner Bros. will significantly enhance the company's content moat and pricing power: it can use classic libraries and long-running series to increase retention, as well as use super IPs to drive new films, derivative series, games, licensing, and merchandising. derivatives; it can also incorporate the ability of HBO's global hit series into Netflix's global distribution system. If the deal is completed, some of the popular IPs that Netflix will possess (key content repeatedly mentioned/cited in public reports) mainly include numerous fantasy/super IPs, such as Harry Potter/"Wizarding World" (including "Fantastic Beasts"), DC Universe (Batman, Superman, Wonder Woman, Suicide Squad, etc.), Matrix series, Annabelle series, Lord of the Rings series, Hobbit series, and Dune series, etc., as well as the HBO flagship series universe - such as the Game of Thrones series (including spin-offs such as "House of the Dragon" and "The Seven Kingdoms"). David Ellison, CEO of Paramount Skydance, believes that merging with his company will maintain a more traditional Hollywood structure and preserve some of Warner Bros.' legacy. He believes that the financial advantage of his all-cash proposal is stronger and believes this will be easier to obtain approval from regulators. Ellison has also launched his own PR campaign, but has not yet convinced the Warner Bros. board or the majority of shareholders. Institutional investors are divided on the matter, demanding that Paramount continue to raise its bid.