Netflix “built our M&A muscle” during its ill-fated quest to acquire Warner Bros, Co-CEO Ted Sarandos told Wall Street analysts Thursday.
“We’ve learned so much about deal execution, about early integration,” Sarandos said. “We’re really proud of the teams that did all that work. We were proud to win the bid. We are confident in our ability to get to the finish line with regulators for the approvals that we needed. But mostly, we really built our M&A muscle. And the most important benefit of this entire exercise, though, was that we tested our investment discipline. And when the cost of this deal grew beyond the net value to our business and to our shareholders, we were willing to put emotion, and ego aside, and walk away.”
The comments came during a quarterly post-earnings video session with analysts after the release of solid first-quarter results, with revenue and earnings both exceeding Wall Street analysts’ expectations.
In late-February, more than two months after its $82.7 billion acquisition offer for the studios-and-streaming division of WBD was accepted, Netflix bowed out of the deal after Paramount sweetened its bid. Netflix execs have made multiple comments about the chain of events in the intervening weeks, but Thursday’s remarks were the first directly addressed to investors.
“Our biggest risk was losing focus on our core business while we were working on the transaction,” Sarandos added during the . So, as you can see from our Q1 results, we did not lose focus. We’re very encouraged by the team’s ability to stay focused on our core business while, you know, exploring this opportunity, as well. Historically, we’ve been builders and not buyers, so there were certainly questions, internally and externally, about our ability to do a deal of this size. What we did learn, though, was that our teams were more than up to the task.”
Sarandos, Co-CEO Greg Peters and CFO Spence Neumann all reiterated prior messages about the prize of Warner being a “nice-to-have, not a need-to-have” asset.
While Sarandos didn’t indicate any specific strategic thinking about future M&A, he said “doing it at this level” with WBD “sets up our teams to understand that that’s the expectation of them day to day.”
Sarandos, who was photographed last December strolling the Warner lot in Burbank along with Peters, expressed wistfulness about the deal being scrapped. “We met a bunch of great people in WBD during this process,” he said. “So if there’s any emotion in all of this, it was the disappointment of not getting to work with those folks. And we were really looking forward to that.”
Financially, the abandonment of the merger entails “no change in our capital allocation philosophy,” Sarandos added. “We invest in the business, both organically and opportunistically, with M&A.”
The company’s recent acquisition of Ben Affleck AI firm InterPositive is an example of an appetite for dealmaking, the exec added. The company evaluates deals while “maintaining strong liquidity, returning excess cash to shareholders through share repurchases. So, M&A for us remains a tool to help us achieve our goals. And as you can see with the WB deal, will remain very disciplined as how we approach it.”
Last month, Sarandos told Politico that Paramount “did a very nice job of creating a very loud narrative of a regulatory challenge that didn’t exist.” Both rival suitors insisted that the other’s deal would present monopoly issues. As it navigated the initial regulatory process and managed industry reaction, Netflix repeatedly asserted it would honor Warner theatrical windows and keep the studio and HBO intact.
Netflix shares, which dropped more than 30% since the time the company’s interest in Warner first surfaced last fall, have rebounded since the decision to withdraw from the deal. They closed Thursday up more than 15% in 2026 to date, though they sold off in after-hours trading.
The scale and valuation of the proposed Warner transaction were exponentially greater than any prior M&A deal executed by Netflix. Nevertheless, the impression has been left among many Wall Street analysts and investors that the company was sending a signal when it committed to the deal.
In a note to clients titled “Where Does Netflix Go From Here?” Guggenheim analyst Michael Morris called out price increases and gains in ad revenue as key positives. At the same time, he added, “the engagement picture presents a more complicated debate.” While Netflix management has steadfastly insisted that it did not engage with WBD as a way to obscure declining trendlines in its North American business, Morris said the viewership numbers do not necessarily back up that claim.
“Where does management deploy capital to reignite growth?” Morris asked. He said there could be four potential ways: a smaller M&A deal; acquiring more sports rights; replicating the agreement reached last year with French broadcaster TF1 around the world; or “aggressive capital return.” In opting to walk away from WBD, Netflix pocketed a cool $2.8 billion breakup fee, and will see much less “overhang” in the near term with the deal off the table.
