What Happened?

Shares of global entertainment and media company Warner Bros. Discovery (NASDAQ: WBD) jumped 3.7% in the afternoon session after reports surfaced that streaming giant Netflix was actively exploring a bid for the company's studio and streaming business. According to several reports, Netflix hired the investment bank Moelis & Co. as its financial adviser to review a possible offer. In a move signaling that discussions were progressing, Netflix also gained access to Warner Bros. Discovery's financial data. This development allowed the streaming service to evaluate a prospective offer more closely. The news prompted a positive reaction in the market, as the potential for an acquisition drove investor interest and pushed the share price higher.

After the initial pop the shares cooled down to $22.41, up 3.6% from previous close.

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What Is The Market Telling Us

Warner Bros. Discovery’s shares are very volatile and have had 24 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 18 days ago when the stock gained 4.6% on the news that the company rejected an initial takeover offer from Paramount Skydance and received a price target increase from Citigroup. The media giant turned down a bid of around $20 per share from Paramount Skydance, a move that suggested the company's leadership believed its intrinsic value was much higher. This rejection of what was termed a “too low” bid fueled investor optimism. Adding to the positive sentiment, Citigroup raised its price target on the stock to $25 from $14, while keeping a 'Buy' rating. The brokerage cited improving business fundamentals and growing profitability in the company's streaming division. Reports also indicated that despite the initial rejection, talks between the two companies were continuing, keeping the possibility of a future, higher-priced deal alive.

Warner Bros. Discovery is up 110% since the beginning of the year, and at $22.41 per share, has set a new 52-week high. Investors who bought $1,000 worth of Warner Bros. Discovery’s shares 5 years ago would now be looking at an investment worth $1,061.

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