The Best Deal Netflix Never Made

Netflix walked away from a bidding war and came out $2.8 billion richer for it.

Netflix $NFLX ( ▲ 0.09% ) shares are up 16% over the past month after the streamer exited the fight for Warner Bros. Discovery $WBD ( ▼ 0.76% ), while the S&P 500 dropped nearly 4% over the same stretch as investors fretted about Iran War inflation risk.

The winner of that bidding war, Paramount Skydance $PSKY ( ▲ 2.12% ), has been a different story entirely, falling 15% over the same period as investors focused on its mounting debt load.

Paramount shares closed Thursday at their lowest level since August 2009.

The exit came with a tangible prize. Netflix is owed a $2.8 billion termination fee from Warner and Paramount, and analysts are forecasting $11.4 billion in free cash flow for the full year, which gives the company real runway for what the Street has been speculating about: share repurchases.

Citi $C ( ▼ 0.3% ) resumed coverage with a Buy rating this week, setting a price target that implies 25% upside from Thursday's close. Analyst Jason Bazinet cited scope for Netflix to raise its full-year EBIT guidance, along with potential streaming price hikes, as additional reasons to take a position.

The irony isn't subtle. Netflix lost the deal and gained a premium, while the company that won it is watching its stock price revisit lows from seventeen years ago.

For shareholders who were nervous about a debt-heavy acquisition, the plot resolved itself.