A US$2.8 billion fee and fresh buybacks test how far pricing power can really go
Netflix is turning a US$2.8bn breakup fee and a shelved megadeal into a massive bet on buybacks just as questions mount about its next growth drivers.
Netflix’s board signed off on an additional US$25bn share repurchase plan after it abandoned a proposed US$72bn acquisition of Warner Bros Discovery’s assets, BNN Bloomberg reported.
The new authorization sits on top of a buyback approved in December 2024, has no expiration date and comes with about US$6.8bn still remaining under the previous plan as of March-end.
BNN Bloomberg reported that the company had earlier said it would restart share buybacks and invest about US$20bn this year in films and television.
Netflix also received a US$2.8bn termination fee from Paramount Skydance as part of its proposed US$110bn acquisition of Warner Bros Discovery.
Markets have swung around the scrapped deal, the buybacks and softer guidance.
Netflix shares fell about 9 percent last year after the Warner Bros deal was announced but have climbed about 10 percent since the company walked away from it in February.
Reuters said shares have fallen more than 18 percent since early December, when Netflix first submitted the bid for Warner Bros Discovery, but have rebounded around 21 percent through Thursday close after the deal was scrapped in late February.
More recently, Netflix shares fell more than 10 percent in early trading on Friday as investors digested a tepid forecast and the surprise exit of co‑founder and Chairman Reed Hastings amid worries over the company’s next growth driver.
If losses held, more than US$44bn was set to be wiped out of the company’s market value on Friday.
According to CNBC, the abandoned Warner Bros transaction marked a sharp turn for a company whose executives had long told investors they were “builders not buyers.”
Late last year, Netflix emerged as a bidder for Warner Bros Discovery and in December announced a deal to acquire its film studio and streaming assets in a US$72bn deal.
Netflix said it wanted to deepen its bench of franchises and intellectual property and get more squarely in the movie studio business.
Paramount Skydance ultimately upended the deal in February with a superior bid, and Netflix walked away, collecting the US$2.8bn breakup fee “in short order.”
Co‑CEO Ted Sarandos said “our teams were more than up to the task” and that Netflix “really built our M&A muscle” and learned a great deal about deal execution and early integration.
The main benefit, he said, was that the company “tested our investment discipline,” according to CNBC.
He added that the WB deal “was a nice to have, not a need to have” and said Netflix is “very confident in the core business,” pointing to Q1 results as proof it did not lose focus.
Operationally, Netflix has moved to reinforce that core.
In the two months since it scrapped its pursuit of Warner Bros, the company has rolled out several growth initiatives, BNN Bloomberg reports, including buying Ben Affleck’s AI film‑tech firm InterPositive, raising US subscription prices and launching a gaming app for kids.
At the same time, Netflix is leaning more heavily on advertising, live programming and price increases. Growth is moderating and competition is intensifying, Reuters reported.
Analysts expect the company to refocus on growth areas including advertising, live programming and sports as it looks to scale its ad‑supported tier, which is seen as key for future revenue growth.
Emarketer senior analyst Ross Benes said Netflix’s buyback “provides some answers on what it plans to do following its WBD breakup fee collection,” but “doesn’t entirely show where the company will reinvest runs,” according to BNN Bloomberg.
He told Reuters that Netflix’s next test is to “truly diversify away from having subscriptions account for almost the entirety of its revenue,” and said its ad business is expanding, “but not at the rate marketers expected more than four years ago when the ad tier was launched.”
Pricing and ad monetization remain under scrutiny.
With subscriber growth hitting a ceiling in mature markets, analysts say price hikes could help offset the slowdown, but not for long, the same outlet reported.
Morningstar analyst Matthew Dolgin said “generating higher revenue per user will be the biggest key to keeping growth high,” but he doubts the firm can keep lifting prices at the same pace every year.
The process “doesn’t happen in a vacuum,” he told the outlet.
Dolgin said some advertising gains could come from customers shifting from premium plans to ad‑supported tiers, meaning revenue growth may not be fully additive.
Last week, Netflix provided a tepid forecast for the second quarter and said its co‑founder and Chairman Reed Hastings will exit the company in June.
Netflix beat first‑quarter revenue and profit expectations but forecast earnings per share for the current quarter below analysts’ estimates and warned revenue growth would slow to its weakest pace in a year, Reuters reported, citing LSEG data.
