Tech Corner: NFLX After Losing WBD Bidding War

0:00All right. Welcome back to the tech corner. I'm George Tillis and your markets contributor with the Schwab Network. Today we're going to be revisiting Netflix. As you all know, Netflix is a leading global entertainment service provider offering a vast array of TV services, documentaries, feature films, and games across various genres. As a video on demand distributor of movies and television shows over the internet worldwide, subscribers have access to the Netflix content library for fixed monthly subscription fee. The company offers several support service tiers as well as advertising support services as well. The flexibility allows Netflix to carry catered to various consumer needs. We're offering tiered subscription models, including the rapidly expanding ad supported plan. Netflix has successfully maintained a dominant reach now serving over 325 million paid memberships across more than 190 countries. The footprint now is truly international with 59% of the revenues coming from overseas. Now, let's get some of the competitors in Netflix. First off,

1:01noble competitors include Disney with Hulu, Amazon Prime Video, Warner Brothers, which includes HBO and Discovery, Paramount, which includes Paramount Plus on the streaming service side, Comcast as well as Google with Alphabet's YouTube platform. Now, when it comes to unique value, Netflix's proposition lies in its extensive global reach and its ability to produce culturally relevant content tailored to specific markets. This proprietary technology enhances user experience through personalized recommendations, which is a significant differentiator. Additionally, Netflix's investment in artificial intelligence and data analytics enables it to optimize content creation and advertising, creating a defensible mode against competitors. Furthermore, the company's ad supported subscription plan expands accessibility and provides a new revenue stream, reinforcing its position as a leader in the streaming industry space. Now, let's take a look at some recent news on the name. First off, going back to January 20th of this year, the company reported its fiscal year 2025 Q4 earnings and sales. Revenue's actually came in the head of estimates that are on $10.54

2:04billion, up 12.5% year-to-year year, and more importantly, operating income increased to $2.96 billion of 30% year-to-year year, and operating margin was shown to increase to 24.5% of sales, versus 22.2% for the same quarter in the previous year. Some key performance drivers include its ad to momentum, where advertising revenue exceeded $1.5 billion. This is two-and-a-half times what it was last year on a year-to-year basis. Also, management explained that they expect this advertising revenue to increase to $3 billion in sales by 2026. Despite some of those recent headlines in terms of earnings and sales, as well as margin improvement, there are other pauses we have to consider with the name. First off, the company's AI-driven platform boost engagement and production efficiency, outpacing traditional broadcasters and big tech rivals with ad-supported tiers driving half of its new signups and available markets. The launch of this ad paid subscription plan, which goes back to late 2022, has been extremely successful. Advertising is certainly a new revenue source. Netflix is leading distribution to subscribers

3:07across the globe, and is also attracting cross-licensing opportunities. Most recently, the decision to not proceed with the Warner Brothers acquisition has resulted in $2.8 billion in termination fee gains, which strengthens its balance sheet and allows further investment in content and share buybacks. Strong double-digit revenue growth, combined with operating leverage that's improving, is expected to drive massive free cash flows going further, enhancing its financial stability and growth prospects. And lastly, despite the growth in double digits for sales, net income margin is also improving. Profitability in that case is over 24% of sales, significantly above the sector average around 4%. This excellent profitability metric underscores the company's efficiencies in converting sales and actual profits. Now, despite many positives for netflix, we also have to address always some concerns. Now, first off, netflix's decision to walk away from the Warner Brothers acquisition may raise concerns about its ability to compete with more leverage competitors that may gain strategic advantage over netflix over time. Despite strong

4:07revenue growth, netflix's viewing hours only grew 2% in the second half of 2025. This may indicate potential challenges in maintaining engagement, as well as potential pricing power going forward. The company's high valuation and the risks associated with the previous Warner Brothers bidding war exposes netflix to execution leverage risks, leaving little room for error. If we look at an earnings multiple on a forward basis at around 30 times earnings, this is double the sector medium of 14. Again, these multiples are high, which can intensify price action to the downside, based off potential pitfalls and things like sports broadcasting and intensifying competition. All right, now let's look at the technical picture for netflix. First off, the technical picture is rather mixed. The company actually has a six month price decline of 25 percent and a one year decline of 5 percent, which has been underperforming the S&P in those two periods of times. However, recently, the stock has reclaimed both the 10 and 20 day moving averages, which suggests the near term trend is positive and bullish and is now in a short term consolidation zone. In late February, in late February, the stock surged up over 20 percent from

5:11the February 27th lows, which was approximately $75 a share. It has risen significantly since them, but it has also reclaimed the 50 day moving average. Now, this reclaimed validates the strong near term technical condition for netflix. However, if you look at the intermediate term, the stock is still below the downward sloping 200 day moving average, which indicates the stock is slowly improving and still building upon a base of near term support at around $90 a share, which is actually the low of the gap day going back to February 27th. Now, if the low of the 27th actually fails, you have to keep in mind that price action may continue to lower towards that rising 50 day moving average. Lastly, from a relative strength standpoint, the stock has certainly outperformed the market of the last 30 trading days, and the RSI indicator is above 50, which suggests improving price action conditions for netflix. Now, in summary, netflix continues to stand out as the undisputed tighten of global entertainment. While we think of them as purely a streaming service, they are now a massive multi-faceted distributor of television series, documentaries, feature films, as well as mobile games.

6:15The company is doubling down heavily on being the everything at for entertainment. By walking away from the Warner acquisition, they've proven they won't sacrifice financial health for vanity metrics. With a focus on live sports, immersive theme parks, and a booming ad business, netflix is successfully evolving from a tech disruptor into a diversified media conglomerate. All right, that's it for this week's edition of the tech corner. Please don't forget to like and subscribe to the Schwab Network. I'm George Tillis. We'll see you here next week.