Motley Fool Hidden Gems Investing - The Good, The Bad, and the Unknown at Netflix

Episode Date: January 21, 2026

Netflix reported earnings and results were solid, but guidance left investors wanting more. We discuss what we saw and why Netflix went all-cash for its Warner Bros Discovery bid. We also touch on the bond market, which is looming over the market today. Travis Hoium, Lou Whiteman, and Rachel Warren discuss: - Netflix earnings - Netflix going all-cash for WBD - Bond markets in turmoil Companies discussed: Netflix (NFLX), Warner Bros Discovery (WBD). Host: Travis Hoium Guests: Lou Whiteman, Rachel Warren Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Motley Fool Money. I'm Travis Hoey. I'm joined by Rachel Warren and Lou Whiteman, big news over the last 24 hours has been Netflix. They reported earnings yesterday. The numbers looked pretty good, but the stock's down about 3% as we're recording. It was down about 5% to the open. But Rachel, what did you see from the results from Netflix? I mean, despite the market's response, I would say it was a pretty good report for the company. And I want to talk about a few of these numbers and metrics. So Netflix, their Q4 revenue was just a little over $12 billion. That was actually up about 18% from one year ago. Earnings per share of $0.56. Now, both were slightly above what Wall Street had been projecting. The main driver of the

stock drop that we saw post-earnings had to do with management's forecast for slower revenue growth in 2026. They're looking for anywhere between 12% to 14% growth compared to 16% in 2025. And they also guided for lower-than-expected Q1 profit expectations. Now, I think it's important to remember, Netflix is performing pretty strongly as a mature business. This is a much more mature company than even five, six years ago. They are really navigating a period of significant transition, and I think that's feeding a lot into investor uncertainty. They reached a massive milestone of about 325 million global paid memberships last year. They added about 23 million subscribers over the course of 2025. The ad business is growing significantly.

They're aggressively moving into live sports and events. And of course, there's that high-stakes, all-cash bidding war to acquire Warner Brothers. So, I think, again, this is the undisputed leader in streaming. They've got that humming core engine. They're trading some short-term profit comfort for a bet on long-term dominance. And that's something investors need to watch. But that's the thing, right? Like Rachel said, it is a maturing business. And we're just going to have to get used to that. This whole last six months or year of Netflix hasn't been about Netflix is falling apart or the sky is falling. It's about management recognizing that they are at a new stage in their existence and reacting. Look, they're going to spend more on content

this year. 10% content increase over $18 billion this year. Content is not cheap. That's partially why they are looking to acquire more of it. They are doing a big deal. There's going to be costs with that. They need to raise cash. They're pausing buybacks. Everything they're doing is rational. And if you are a long-term Netflix holder, you should be relatively okay, at least, with their guidance being conservative and what they're doing. But again, when someone tells you who they are, believe them. And what Netflix is doing is telling you that the hyper growth rah-rah days are over, and we need to navigate the world as a mature company. How do you think about that transition, Lou? Because I think that is probably the right way

to think about Netflix. We've been talking on some of these shows about YouTube is actually taking share in view time on TVs. So Netflix, not necessarily in the super, super strong position that they were in a decade ago when they were a very, very clear leader in streaming, but it's still a pretty expensive stock. I'll just go through some of the numbers here. the five-year compound annual growth rate is 12.6%. That's a solid growth rate, but it's not something that you would typically see trading for a really high multiple, but yet the enterprise value to sales is nine. The price to earnings multiple is 35. Lou, are we in a period here where you're transitioning from being this hot upstart, this high growth company, the world is

your oyster to you kind of conquered the world and now you're in extraction mode and you know maybe the shareholder base even shifts over that period of time to people who are looking at what's the return on investment what's the capital spend all the boring stuff that we talked about with older companies yeah i i think that's exactly it but real quick on youtube yes youtube is doing great but this is not a winner take all game i think i mean that's more for pundits for people like us to look at who's winning, who's losing. There is plenty of room, in my head at least, for Netflix to win and others to win. I mean, I can't imagine that this turns into that. I think Netflix is very fine. The problem is that for years, Netflix was great. And fine is a

downgrade. And so, I think we're going through this in real time, and we have a very, very, very disruptive corporate action that we'll talk about later, kind of in the middle of it all. But I would love to sort of strip out all of the M&A talk and all of that and just kind of look at this quarter. And the quarter is both really, really good and not as great as it was before. And again, I think that that is the important takeaway here. Maybe three, four, five years down the line, they will, through corporate actions, have found a growth mojo. Or I think it's more about sustaining what they have. But look, as you say, when you have all the customers in the world, there are only so many levers you can pull. I would note, they say ad sales are

going to double in 2026. And it was at $1.5 billion in 2025. So that's good. That is a lever they still have to pull. This business is healthy. This business is fine. This is not a business that's going to triple in the next two years or three years though. And for so long, Netflix has just been eating everyone's lunch. I do think there's an adjustment. Rachel, the one number that kind of jumps out when you look at their forecast is you're looking at a year over year revenue growth rate going to 15.3%. That's their guidance. This quarter, this most recent reported quarter was 17.6. Then it was 17.2. So your, your growth rate is coming down. And that's, I think the worry is that something that we should be worried about as investors? I really think that a lot of that

goes back to just the maturity of the business. And you have to look at how a lot of the levers for growth for Netflix have really evolved over the last few years as well. I mean, that ad business, of course, is growing rapidly, as Lou mentioned. It's also worth noting that ad revenue in 2025 was about two and a half times more than in 2024. So it's a different lever for growth than we've seen for the business in the past. This is a more mature company than we knew several years ago. But I think that if you are a long-term shareholder in this business, this is a quality company. They're a leader in their respective space. They continue to be very well financially fortified. And I think that that is something that can give us a lot of confidence in where

the business is going as they evolve into their next growth story. This is not the only thing happening at Netflix. We've alluded to the acquisition of Warner Brothers Discovery. We're going to discuss that next. You're listening to Motley Fool Money. try breakfast at A&W. You gotta try breakfast at A&W. And what better way than with a delicious Pret organic coffee, starting at just $1 all day, every day, now until December 31st. You gotta try breakfast at A&W. At participating A&W locations in Ontario. Welcome back to Motley Fool Money. The other big news from Netflix is they changed their Warner Brothers Discovery bid to all cash. This is something I think we've talked about

on the show. This was an option that they were eyeing, especially because the stock portion of their offer went down in value as Netflix stock went down in value. And Paramount came in and said, hey, we're offering all cash. That's a better deal, isn't it? And so, Rachel, what do we know about this right now? It looks like it's going to be about $83 billion, which Netflix is a big company, but that's a lot of money to pay for Warner Brothers Discovery, and it's going to require a lot of debt, too. Yeah, you're absolutely right on that.

So they've officially amended their bid for Warner Brothers Discovery to an all-cash offer of $27.75 per share, so it values the transaction at about $72 billion or about $83 billion, including debt, which is notable. And this is very much a strategic shift to lock in a deal with Warner Brothers Discovery's board, which really unanimously supports the offer. And as you noted, that all-cash structure, it removes the volatility of Netflix's stock price from the deal equation. It provides shareholders of Warner Brothers with immediate, predictable value. Now, the deal, of course, is designed to give Netflix ownership of an incredible content library, ranging from HBO Max

to Harry Potter, Game of Thrones, and so forth. And it's also worth remembering, Warner Brothers Discovery board members, they have rejected the Paramount offer. They viewed it as a much riskier leveraged buyout. The Netflix deal, I think, is broadly viewed as a better capitalized one. It's got a much lower leverage ratio of under four. It's, I think, important to also highlight that all-cash bid requires Netflix to increase its bridge loans from about $34 billion to about $42 billion. So, it does add significant debt to its balance sheet. And if the deal were to be blocked by regulators, which is a question, as it always is, Netflix could be liable for a $5.8 billion breakup fee. So, those are some of the key figures there. I do think that shift to an all-cash deal,

it's a bold move. It prioritizes their securement of the acquisition. I think the risk is something of a trade-off. There might be some short-term financial pressure, but the idea is this is going to consolidate Netflix's market power, help them achieve their long-term content goals. I still think the acquisition is good news for the business, but investors should be aware of exactly what it entails. Lou, debt is not new to Netflix. They actually had $15.8 billion in debt at the end of 2020, but that's actually been coming down, and that debt was used to buy content and build their moat around their business. This is very different. This is a really, really significant amount of debt. Is it something to be worried about?

Kind of, but not really. Look, they're using debt to acquire content here just with a different kind. You can say it's more of a sure bet, or you can say it's older, it's not innovative. But here, Rachel mentioned, there's so much hemming and hawing about this debt. I'm not here to be too Pollyanna, but look, this is how deals happen. Bridge loans going up, big deal. The whole point of a bridge loan is it's temporary. And the risk in a bridge loan is, can you pay it down quick? They have already worked out how to structure long-term finance for most of the original bridge loan. Oh, no, they were going to issue stock. They can very easily now just sell stock to raise cash. I think there's a real naivete about the debt. Like, oh, no,

they're taking on debt. I think that they can handle it. But yes, it does make this a different company. And again, this is part of our discussion before, is that Netflix is no longer this nimble upstart. It will impact them. They will have to manage cash, but they generate a lot of cash and they have a lot of levers to pull to raise cash. Like I say, implicit in the original deal was the number of shares was going to go up. So a secondary right here makes all the sense in the world. They might want to time it right. Don't worry about bridge loans. Worry about long-term financing. It'll come together. They can handle it. It does give them less flexibility. Yes, that's what debt does, but you're less flexible if you get a mortgage.

Lou, one of the things that I always think about with some of these deals is we can only analyze them based on what we know today. And what we don't know is what management is talking about is what Netflix's business looks like in the future. It seems like it's very possible that they close this deal. And within a year or two after that, suddenly we see tears within Netflix. So now instead of, you know, I think I'm paying something like $20 a month for Netflix. Now, if I want to add the HBO content, I want to have Game of Thrones and all that library. Maybe that goes to $30 a month or maybe it's even $40 a month. Is that another lever that they can pull?

Because it does seem like they we talked about they've gotten to now 325 million subscribers worldwide. That's not an easy lever to pull to increase that number at this point. The price lever is easier to pull. And if you pull Warner Brothers Discovery's content into your library, now suddenly you have a little bit more power. There's really only Disney that has that kind of content library. And now you're kind of playing a two-man game. Is that a way to think about it?

Is that the unknowns are really financial upside just through pricing? I think what you demonstrated, none of us know what they're going to do. But yes, there is a lot of optionality. I mean, whether it's going to be tears or tears, right. You know, that's, that's what we'll have to see. But look, I mean, arguably HBO does have a reputation as a premium brand that you could charge extra for. I don't know if Disney has that, you know? So, so I do think that ESPN would be the side. Well, yeah, but, but not in entertainment. So, you know, there are, there are unique assets. Uh, the answer to your question is none of us know, but it points out

the fact that we are judging this deal based on the Netflix of the last few years and how they have operated. We are not really thinking about their optionality of the future. I've said this before, but as a shareholder, I will trust this particular management team to have a plan and figure it out more so than I would almost any other management team in this industry. So I don't think we should be too Pollyanna. This changes the company. But again, I think they're saying who they are and where they need to go. And I do think this management team has earned some benefit of the doubt here with this. I will say, I do think that this acquisition as well is going to be really important for their growth story moving forward. I mean, this is an

exceptional and storied library of content that they acquire should this Warner Brothers Discovery acquisition go through. And I think that that could also provide a lot of the growth that investors have sort of come to miss from the business over the last few years, particularly as they got used to that growth story during the pandemic era. Obviously, Netflix's internal content generation machine is exceptional, but they have historically also relied on acquisitions to drive that growth. And I think acquiring a library of this kind could be really integral to that. So I think that's something for investors to really watch closely. Definitely something that we're going to keep an eye on. And with the stock dropping,

I'm not a shareholder, but I'm getting more intrigued by the day. When we come back, we're going to talk about some macro news. You're listening to Motley Fool Money. You've got to try breakfast at A&W You've got to try breakfast at A&W And what better way than with the delicious Pret Organic Coffee Starting at just $1 all day, every day, now until December 31st You've got to try breakfast at A&W At participating A&W locations in Ontario

Welcome back to Motley Fool Money. There's a lot going on in markets, but one thing that has caught our eye is interest rates, not only in the U.S., but also in Japan, and they're moving higher loo. What does that mean for investors? We shall see, right? I mean, what it means, and so much is made of the Fed, and especially in this last year, the way the president has sort of been badgering the Fed, we are seeing the limits of what the Fed can do and what short-term interest rate policy can do. We've been saying this for a while, but we're seeing it now play out in real time. Can you explain that? The Fed does not set the 10-year rate or mortgage rates. No, they set overnight rates. It's a very, very short-term rate.

Right. Theoretically, everything should move together as this goes, but real world is not theoretical. I think it's interesting if you just look at the last few days, what has happened with long-term rates. It has basically reversed about $400 billion in mortgage buying that tried to bring the mortgage rate down in an election year. It's just good to show you that I keep saying this. I'm an equity investor, not a bond investor, so I say this very humbly. The bond market is smarter than the equity market, or at least it's more forward-looking. By default, you have to be. There's so many fewer variables. You're just kind of looking at long-term trends right now, whether it's the U S whether it's Japan, we are looking at a uncertain macro environment.

We are looking at a lot of concerns about deficits all over the world. That's what's going on in Japan. It's what's going on here. And the market is coming to the conclusion that it is unlikely that long-term rates are going to be as low as they are now. And so it's keeping rates higher. Does that affect equities? I mean, on a long enough scale, yes. On a long enough scale, it's got to, because we are talking about all of these macro issues and all of these factors that do go into equity prices. But in the near term, I don't know if it necessarily, I can't trade equities based on this. Because I think that, again, this is just one small part of the puzzle. And yeah, we should pay attention to it. Yeah, we should be aware of what it's telling us.

But I don't think it's not a chicken little signal. Going back to those Japanese government bonds, the 40-year yields breached 4% for the first time in over three decades. And this is broadly because the Bank of Japan is tapering its bond purchases. There's concerns over a massive new stimulus package worth about 21.3 trillion yen. It's worth noting Japan remains the largest foreign holder of U.S. treasuries, both in the U.S. and Japan. And so, you know, there's been some concerns about unbridled debt issuance that could cause investors to demand higher yields to hold government debt. We're also in a time where, you know, trade disputes are raising concerns about inflationary pressures. We're seeing European investors increasingly viewing their

own bonds as an alternative to U.S. treasuries. You know, foreign holdings of U.S. treasuries reached an all-time high as of the end of 2025, although we've started to sort of see a bit of a shift in sentiment recently. I think it remains to be seen whether that's a long-term curve or not. Equities, particularly in the tech sector, they've been under pressure lately. There's been, of course, the risk-free rate on bonds is becoming more attractive. There's been fears intensifying about valuations. I think foreign investors as well have continued to heavily invest in U.S. equities. There's been a lot of interest in AI-related growth, high corporate earnings. So I think as always, as investors, and I say this as someone that is not a bond

investor, I'm a purely an equity investor, you need to keep focusing on companies with really strong balance sheets, stable cash flows, robust business models. Those are the companies that can offer resilience during periods of economic uncertainty. And I think that we are in a period of economic uncertainty, and I don't think that's going to stop anytime soon. Higher bond yields can translate to higher borrowing costs across the economy. Businesses and households can face more expensive financing. Those are all very real factors there. But for us as investors, avoiding impulsive decisions based purely on short-term market movements is really key for maintaining those long-term financial goals that we strive for. Yeah, the bond market will be interesting

to watch over the next few months and year or two because it does seem like that risk balance is shifting. So like you have both said, we are stock investors, not necessarily something we keep an eye on on a day-to-day basis, but something to be aware of. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standard and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes.

for Lou Whiteman, Rachel Warren, and Dan Boyd behind the glass. I'm Travis Hoyum. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.