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Paramount closed its purchase of Warner Bros. Discovery on Tuesday, Oct. 6, and the merged company, now named Skydance (NYSE:SKYD), says it has almost $70 billion in revenue. Besides two movie studios, CBS, and CNN, it owns the Paramount+ and HBO Max streaming services, and it counts over 200 million streaming subscribers across its platforms.
That makes it bigger than Netflix (NASDAQ:NFLX), at least in sales. The streaming leader expects 2026 revenue of $51.0 billion to $51.4 billion, so even against Netflix's outlook for this year, Skydance takes in around a third more.
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It's also a deal Netflix wanted a piece of. Netflix agreed last December to buy Warner Bros.' studios and HBO Max for an enterprise value of around $82.7 billion. It later declined to match Paramount's larger offer in February and got a $2.8 billion termination fee.
With Netflix stock near $69 as I write this, within about 6% of its 52-week low, should shareholders worry about a rival this much bigger? I think the sales number overstates the threat.
Skydance's pro forma statements (the two companies combined as if they'd always been one) show how differently the rivals turn sales into profit.
Skydance's pro forma revenue was $66.1 billion in 2025, well above Netflix's $45.2 billion. But Skydance had a pro forma operating loss of around $2.6 billion that year, while Netflix's operating income grew 28% to $13.3 billion. In the first half of 2026, Skydance's pro forma operating income was just $172 million, versus $8.1 billion for Netflix with around $7 billion less revenue. And Netflix's second-quarter operating margin was 33.4%, just under 34.1% a year before.
These numbers include some deal-related accounting charges, of course, though not nearly enough to explain a gap so big.
The deal had an enterprise value of around $110 billion. Skydance's pro forma balance sheet lists about $82 billion of debt on June 30, against about $8 billion of cash, and its pro forma net interest expense was about $6.4 billion in 2025.
Netflix finished June with $14.3 billion of debt and $9.1 billion of cash. Its interest expense in 2025 was $777 million, so Skydance's interest bill is more than eight times as big.
Management is also targeting more than $6 billion in annual cost savings over the next three years. I'd say a company carrying that much debt and taking $6 billion of costs out of its business isn't set up to start a price war.
Skydance does plan to roll Paramount+ and HBO Max into one service over time, which might make it a stronger rival. But Netflix said in July that the results of its recent price changes were in line with earlier ones.
Skydance says its pro forma content spending passed $30 billion in the last 12 months. Netflix said in February that it would invest around $20 billion in movies and series this year.
And Netflix's own content costs are accelerating. Its content amortization (the expense it books as it writes down the cost of its shows and movies) climbed 7% in 2025, to $16.4 billion, while revenue grew 16%. For 2026, management expects amortization to rise around 10%, with revenue up 13% to 14%.
That gap between revenue growth and content-cost growth is narrowing, from about 9 percentage points last year to about 3 or 4 this year. And it's a big part of why Netflix's operating margin climbed to 29.5% in 2025 from 26.7% in 2024, with 31.5% expected for 2026.
If Skydance bids up the price of shows and sports rights, that gap may narrow further. Netflix, though, has shown it won't chase a deal at any price.
"[T]his transaction was always a 'nice to have' at the right price, not a 'must have' at any price," co-CEOs Ted Sarandos and Greg Peters said in a February statement.
Meanwhile, the stock's valuation arguably isn't steep.
After all, Netflix expects operating income to grow more than 20% this year, and its shares trade at around 18 times analysts' average estimate for next year's earnings.
Does a $70 billion rival make Netflix stock a worse buy? Not by much, in my view. Skydance is bigger, but Netflix earns far more and owes far less.
My hesitation is more about Netflix itself. Revenue growth is slowing, and content costs are growing closer to revenue's pace. A bigger competitor bidding on the same shows just adds to that.
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Netflix's Newest Rival Has Nearly $70 Billion in Annual Sales. It Also Carries About $82 Billion of Debt. was originally published by The Motley Fool
