Skydance Trades at a Fraction of Netflix's Valuation. Is the Discount Deserved?
Skydance stock looks cheap next to Netflix. That discount comes with $78.9 billion of net debt attached.
Warner Bros. Discovery merged with Skydance on Oct. 6, creating a massive media conglomerate. However, the combined company's shares have dropped 22.2% over the past week, trading at $7.06. For comparison, Netflix's valuation is over eight times larger, at $291.5 billion. Skydance's debt is over double its market cap, and management aims to reduce leverage to 3.75 times EBITDA by 2028, but it's currently near 6 times.
To reach this target, they'll need $6 billion in promised synergies. Skydance raised $47 billion in fresh equity for the merger, but the stock is now 41.2% below the purchase price. Warner Bros. Discovery's revenue fell 11.2% year-over-year, and its studio profits declined 89%. Netflix generated $3.4 billion on $12.6 billion in revenue, compared to Skydance's $190 million on $15.6 billion.
Netflix's cash flow is expected to be around $12.5 billion this year, while Skydance aims for $10 billion or more by 2030. Netflix trades at 18.5 times forward earnings and has a lower net debt of $5.2 billion, while Skydance's operating margin is below 5%. Given these factors, Skydance appears to be the cheaper option, but it's burdened by significant debt and shrinking cable networks.
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