Wells Fargo issued a stark warning to investors this week, cutting its outlook on Netflix and Paramount Global after the two studios clashed over control of Warner Bros. Discovery. Analyst Steven Cahall downgraded both entertainment stocks, signaling concern that the latest deal in Hollywood’s ongoing consolidation spree could weigh on profitability and investor confidence.
Cahall resumed coverage following the high-profile takeover battle that ended with Paramount securing the win. He lowered Netflix from a Buy to Hold rating, while slashing Paramount from Hold to Sell, according to Tip Ranks. His report set a $105 price target for Netflix, which represents roughly 6% upside potential, and a $10 target for Paramount, implying a 16% decline from current levels.
“We think WBD was NFLX’s opportunistic Plan B,” Cahall wrote. “Now it’s back to Plan A: invest for growth.” He added that Netflix chose not to outbid Paramount for Warner Bros. Discovery in order to stay focused on internal growth rather than expensive acquisitions. Wells Fargo expects the streaming leader to rebound by ramping up content spending and user engagement rather than buying more studios.
According to Investing.com, Netflix plans to pour about $20 billion into new programming this year, a figure expected to rise steadily through 2028. The company is also lining up major sports deals, including a possible NFL renewal estimated between $500 million and $1 billion per year for 10 to 20 games per season. Analysts say the move would mark a new chapter for Netflix as it eyes live sports to protect subscriber growth.
In contrast, Cahall’s downgrade of Paramount pointed to rising debt and soft advertising markets. He warned that any earnings miss or broader sector pullback could drag shares far below the current $12 to $15 range. “Elevated leverage and ongoing streaming losses remain a key risk,” his note said. The analyst also cautioned that the company faces post-merger integration challenges as it absorbs Warner Bros. Discovery and contends with rivals like Disney and Netflix.
After losing the bidding war, Netflix co-CEOs Ted Sarandos and Greg Peters said the deal was “no longer financially attractive.” They stated that buying Warner Bros. Discovery was “a nice to have at the right price, not a must have at any price.” The company thanked the Warner Bros. Discovery board and leadership, saying they believed their proposal would have created jobs and strengthened the U.S. entertainment industry.
“We’ve always been disciplined,” the executives said, noting that they remain committed to building what they called a best-in-class streaming service. They added that the Netflix brand remains strong and is positioned for long-term organic growth.
Investors are now watching whether Paramount’s bold move to acquire Warner Bros. Discovery pays off or drags the company deeper into debt. Meanwhile, Netflix maintains its focus on original content, sports, and global expansion, trusting that steady growth will beat splashy deals in the long run.
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