Wall Street Bets on Smooth Sailing for Netflix-Warner Bros. Discovery Merger
NEW YORK – A significant shift in Wall Street sentiment suggests traders are increasingly convinced that a blockbuster acquisition of Warner Bros. Discovery (WBD) by streaming titan Netflix is not only imminent but will also navigate regulatory hurdles with relative ease. Data reveals a dramatic evaporation of short interest in WBD, a stark reversal for a stock that has been a favorite target of bearish bets for much of the past year.
According to exclusive analysis from financial analytics firm S3 Partners, short interest in WBD—representing bets that the stock price will fall—has plummeted to just 3% of the company's tradable shares, down from 6% in July. This decline accelerated sharply over the past month, with short sellers covering positions to the tune of approximately 30 million shares.
"The market is speaking, and it's pricing in a high probability of this merger closing," said Matthew Unterman, a strategist at S3 Partners. "The covering activity aligns precisely with Netflix emerging as the leading suitor, outmaneuvering a competing bid from Paramount. Traders are betting the regulatory concerns are manageable."
The bullish turn marks a dramatic comeback story for WBD. For years, the media conglomerate, burdened by heavy debt from its formation, was viewed as a laggard. Its cable networks faced audience erosion, its film studio output was inconsistent, and its streaming strategy appeared unfocused. However, under CEO David Zaslav's restructuring, the company has slashed debt, unified its streaming service under the potent HBO Max brand, and produced a string of theatrical and streaming hits, lifting its shares from historic lows.
The prospect of a Netflix takeover has supercharged this recovery. The prevailing market logic suggests Netflix's global, direct-to-consumer model and lack of traditional broadcast assets could alleviate some antitrust concerns that might scuttle a deal with another legacy media player.
Analyst & Investor Commentary:
"This is a logical, transformative deal," said Michael Thorne, a portfolio manager at Horizon Capital. "Netflix acquires a legendary content library and production pipeline, while WBD shareholders get a premium and an exit from a volatile sector. The regulatory path, while long, is clearer than many think."
"The shorts getting squeezed is pure momentum chasing, not fundamental analysis," countered Lisa Rodriguez, a veteran media analyst known for her skeptical stance. "This is a fantasy. Regulators in the US and Europe are already on high alert about Big Tech's dominance. Combining two of the biggest content spenders? Congress will have a field day. This optimism is dangerously premature."
"As a long-term WBD investor, I'm thrilled," shared David Chen, an individual investor from San Francisco. "Finally, the market recognizes the value Zaslav built. A merger with Netflix validates the turnaround and offers a fantastic payoff."
Despite the market's apparent confidence, significant hurdles remain. Antitrust reviews in the United States, the European Union, and the United Kingdom are expected to be protracted, potentially spanning up to two years. Lawmakers have already begun voicing concerns about the concentration of market power in the streaming landscape.
Industry observers note that the current low short interest itself creates a precarious dynamic. Should regulatory headwinds intensify or the deal timeline extend indefinitely, a new wave of short selling could quickly re-emerge, potentially driving WBD's share price back down and complicating the merger arithmetic.
On The Money is a financial news publication. S3 Partners founder Bob Sloan is a co-host on the "Risk and Return" podcast with the author.