Is Netflix stock near a bottom while merger and AI risks persist?
Merger uncertainty, soft results and AI risks
Shares of Netflix have been falling since the fourth quarter and are off to a poor start to the year, marked by a seven week losing streak. December's landmark bid for the television and film studios of Warner Bros is contributing to the decline despite its massive potential. The proposed deal raises concerns about regulatory scrutiny, while a rival offer by Paramount adds uncertainty, with Bloomberg reporting that the legacy media giant is weighing reopening negotiations [1].
There are also complexities and costs tied to integrating such a large entertainment business. Crucially, based on the updated all-cash offer, Netflix is lining up $34 to $42.2 billion in loans to fund the transaction [2]. This raises concerns about financial strain against a challenging macroeconomic backdrop and intensifying competition.
Recent results added to those worries. The company expects a higher operating margin of 31.5% for 2026, though that includes roughly $275 million in acquisition-related expenses. It also plans a 10% increase in content spending this year, which could pressure profits. Meanwhile revenue growth is forecast to slow to 12 to 14%, down from 15.9% last year. [3]
The growth runway from the password sharing crackdown and the newer ad tier is also shortening while competition remains fierce. Subscriber growth of 7.6% in 2025 marked a clear slowdown and viewing hours rose only 2%. Markets were underwhelmed by the latest earnings as the stock continued to fall after the 20 January report.
Netflix also falls victim to AI disruption fears that have gripped Wall Street in recent weeks, affecting sectors such as software, logistics and media. An influx of AI generated video could overwhelm audiences and erode the perceived value of content from legacy studios and streamers. At the same time AI is shifting advertising revenue towards social platforms, with Deloitte's 2026 Technology, Media and Telecommunications Predictions highlighting both trends. [4]
Ad strategy and merger potential could power next phase
Markets may not have reacted positively, but January's results showed that Netflix can maintain momentum with mostly solid metrics and guidance. This is largely due to its strategic pivot towards ad supported subscription tiers, as management expands capabilities and expects advertising revenue to double this year. Growth in live sports programming supports that strategy since such events can lift engagement and subscriptions while strengthening advertising power.
Despite the risks, successful execution of the proposed Warner Bros acquisition would bolster Netflix's business. It would provide valuable intellectual property through a deep catalogue of hit films and shows, offer stronger footing in legacy Hollywood and bring an influx of subscribers. The merger wan transform the entire entertainment landscape and reinforce Netflix's leadership in streaming while enhancing its advertising strength.
Disruption risks exist, yet the company can use the technology to its advantage. It is already deploying AI to create tailored adverts and the same tools could increase engagement and reduce costs if used effectively.
Netflix stock outlook
Heightened uncertainty around the Warner Bros deal, AI disruption risks, subdued financial performance and intense competition create a difficult backdrop. The stock is heading for a fifth straight monthly decline and may face further pressure towards 58.70 after a technical Death Cross EMA50 < EMA200).
Still, the selloff looks stretched and price action suggests early signs of stabilisation. The Relative Strength Index has not followed the share price lower, a divergence that can precede recovery, although reclaiming the EMA200 which would negate the bearish bias, remains difficult.
In any case, Netflix is well positioned to perpetuate its lead thanks to relative immunity to macro adversities and strategic initiatives such as the ad supported tier and expansion into live sports. If executed well, the proposed Warner Bros acquisition could act as the next growth catalyst to revive both business performance and share momentum.
Chart source: www.tradingview.com
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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