Jefferies says Netflix abandons Paramount deal to "gain a competitive edge"

Investing.com - According to Jefferies analysts, after this streaming service company decided to abandon its acquisition offer for Warner Bros. Discovery, Netflix’s financial growth appears to be on a sustainable trajectory.

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In a research report, analysts including James Heaney and Jesse Chao stated they are “constructively” optimistic about Netflix’s organic growth prospects following this move. The analysts noted that the company is heading toward 10% revenue growth and a 20% compound annual growth rate in earnings per share.

They added that concerns over declining viewer time per user have been “exaggerated,” and believe Netflix’s customer churn rate and net new user additions remain “industry-leading,” indicating that demand or retention has not fundamentally worsened.

The analysts said user growth is also on a “sustainable path.” Since the penetration of connected TV households worldwide is less than 50%, they forecast Netflix could reach about 410 million users by 2030, “simply by participating in the growth of connected TV households.”

They stated that despite facing price increases and the waning benefits of paid sharing, the net addition of approximately 23 million users in 2025 remains “robust.” They added that Netflix has maintained a utility-like essential status, creating stronger pricing power, and its advertising business is approaching a “turning point.”

The analysts also said concerns that artificial intelligence might lead to increased competition for Netflix are “exaggerated.” They added that AI should reduce content costs and improve profit margins, and the risk of high-quality content shifting to user-generated platforms or competitors copying Netflix’s distribution model is “limited.”

“Even in a world dominated by UI agents, dispersed copyrights and exclusive inventory make Netflix an essential endpoint,” they wrote.

These comments came after Netflix abandoned its previous acquisition offer for Warner Bros., which could shift the long-term corporate battle for this Hollywood veteran to Paramount Skydance.

Netflix executives stated that while the deal “would always be a ‘cherry on top’ at the right price,” it is “not an ‘essential’ deal at any cost.” Following the announcement, Netflix’s stock surged in pre-market trading in the U.S. The company has the financial strength to pursue acquisitions but has faced some shareholder questions regarding the rationale for acquiring traditional media companies.

The reason behind Netflix’s decision to abandon its previous agreement with Warner Bros. was that the board of HBO Max’s parent company determined that Paramount’s offer of $31 per share for all its shares was a superior proposal. Netflix was then given four days to respond but chose to withdraw its $27.75 per share offer for Warner Bros. studio and HBO Max.

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