Key Points
- Earlier this year, Netflix walked away from a deal to acquire Warner Bros.
- The company's slowing growth may be putting pressure on management to make a big move.
- Co-CEO Ted Sarandos, however, doesn't appear to be in any rush to pursue a big acquisition.
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Netflix( NFLX 1.99%) investors were disappointed with the company's most recent earnings results. Although the streaming giant continues to grow at a decent pace, it clearly isn't enough to win over growth investors, especially with it projecting its growth rate to decline to 12% for the current quarter (down from 13%).
One opportunity for Netflix to reignite its growth could be via an acquisition. The streaming company failed to acquire assets from Warner Bros. Discovery earlier this year, but Netflix's name continues to pop up in rumors. Investors may be eagerly anticipating news of a deal, in the hopes that it can pave the next wave of growth for the business. But co-CEO Ted Sarandos appeared to have poured cold water on that, stating on the company's earnings call that "we're primarily builders, not buyers."
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Why Netflix might not go the M&A route
Sarandos made it clear on the company's recent conference call that while Netflix may not necessarily be averse to pursuing mergers & acquisitions (M&A), it would have to make a lot of sense for the business to consider one: "Our track record is clear that we have a very high bar to do any big M&A." CFO Spence Neumann also said, "we invest in the business both organically and opportunistically through M&A."
The key word there is opportunistically. When it pursued Warner Bros., Netflix had a great opportunity to acquire top assets and content, including HBO. And it pursued the deal aggressively until it no longer made sense to do so, as the valuation climbed amid a bidding war with Paramount Skydance.
While an acquisition could certainly help Netflix's business grow, management's focus on building rather than simply buying reflects what the company has done over the years. It has reinvested in its own growth, building its content and varied offerings rather than relying on acquisitions. It has yielded strong results as the business has grown tremendously over the years, and may continue to do so for the foreseeable future.
Is Netflix stock a buy?
This year, Netflix's stock has declined by around 30%, as investors have appeared to have lost confidence in the company's path forward. While the market initially breathed a sigh of relief when Netflix walked away from the Warner Bros. deal earlier this year, the rally was short-lived, as concerns about what the company would do with co-founder Reed Hastings leaving the company began to weigh on the stock.
Uncertainty can significantly reduce a stock's value and also create attractive buying opportunities along the way. With Netflix trading near its 52-week low, it may be one of the best growth stocks for long-term investors to buy right now.
