Paramount has acquired Warner Bros. Why are investors advised to choose Disney and Netflix over its stock?

Paramount has completed its acquisition of Warner Bros. Discovery, creating one of the largest players in the media and entertainment market—Skydance. According to the Financial Times, the deal was valued at approximately $111 billion. However, given their stronger business prospects and balance sheets, Barron’s still advises investors to pay attention to the stocks of this new mega-player’s competitors—Disney and Netflix.

The new Skydance, led by David Ellison—the son of one of the world’s richest men— — still needs to integrate a large portfolio of media businesses, find a way to deliver on its promise of $6 billion in annual cost savings, and simultaneously manage a debt burden that will total about $80 billion after the merger is complete, according to Barron’s and the Financial Times.

Paramount shares closed Monday’s trading session up 3%, rising to $9.78. However, they have lost 26% since the start of the year and are now much closer to their 52-week low—below $8—than to their high of $20, notes Barron’s. Warner Bros. shares, for their part, closed yesterday at $30.95 each—slightly below the buyout price under the deal, approximately $31.02 per share, which, under the agreement with Paramount, will be paid out entirely in cash to shareholders.

Netflix shares are up 1% in trading on October 6, while Disney shares are up 0.2%.

The deal for Warner Bros. Discovery to acquire Paramount has been completed, according to a press release. A new leader in the entertainment industry has emerged—the combined Skydance Corporation. Its portfolio now includes, among other things, television assets such as HBO, CBS, CNN, and MTV; the “Harry Potter,” “Game of Thrones,” “Batman,” and “Star Trek” franchises; as well as the Warner and Paramount film studios.

Overall, Skydance now controls businesses with combined revenue of $65 billion over the past year and more than 200 million subscribers to their streaming services, the Financial Times reports, citing documents provided by the company to its creditors. Over the past 12 months, according to preliminary estimates by the merged corporation, its content production expenses totaled more than $30 billion, the press release states. Skydance now positions itself as “one of the world’s largest media and entertainment companies.”

At the same time, the merged corporation—despite management’s promise to deliver annual cost savings of $6 billion—carries a massive debt of $80 billion resulting from the deal, the BBC notes. According to analysts at S&P Global, this debt will be approximately 7.6 times Skydance’s annual profit. Experts estimate that this ratio will remain at this level until the end of 2027. By comparison, “blue-chip” companies with investment-grade credit ratings typically have debt that is roughly double their annual profit.

Skydance’s main challenge lies in the need to simultaneously integrate a significantly larger company, achieve economies of scale, and reduce debt amid a structural downturn in the television industry, according to Barron’s. Wall Street analysts are not particularly optimistic about Paramount’s prospects. According to MarketWatch, only five out of 25 analysts recommend buying the stock, while nine advise selling it.

Paramount faces a “difficult road ahead,” according to Wolfe Research analyst Peter Supino. Among the company’s challenges, he highlights high debt, declining sales, sluggish studio performance in 2026, uncertainty regarding leadership, a possible large-scale stock offering, and, apparently, an unstable macroeconomic environment. Supino assigned the combined corporation’s stock an “Underperform” rating (“worse than the market”).

“The most important thing is to reduce debt,” Laura Martin, a senior media analyst at Needham & Co., told the FT. “They [Skydance] have too high a debt burden, and because of the delay in closing the deal, they had to raise capital when interest rates were at a three-year high. Now they’re stuck with that debt.”

At the same time, the company’s new CEO, David Ellison, will not be able to significantly reduce film production costs. As part of an agreement with the attorneys general of 12 states that had sought to block the deal, Skydance committed to releasing at least 30 films in theaters per year over the next five years. In addition, the company must spend an additional $1.5 billion on the production of films and television programs in the U.S. during this period. Therefore, Martin expects that a significant portion of the savings can be achieved by streamlining the divisions responsible for the distribution and sale of Warner’s films and television programs.

Ultimately, the financial burden of the $111 billion deal could fall on consumers, says Mike Prulks, research director at Forrester. Since streaming services are constantly raising subscription fees to boost profitability, and Skydance is burdened by massive debt, price increases are likely inevitable, he noted (as quoted by the BBC).

For investors looking to invest in the entertainment sector, the more attractive options right now may not be the shares of the merged mega-corporation, but rather those of its competitors—Disney and Netflix, notes Barron’s. Although the stocks of these companies are trading at higher prices, analysts estimate that both have better prospects and a more stable financial position. For example, Netflix’s stock has fallen 27% since the start of the year and is trading at about 20 times the company’s projected earnings for 2026, Barron’s points out.

Last week, Deutsche Bank analyst Brian Kraft upgraded Netflix’s stock rating from “Hold” to “Buy,” while lowering the price target from $100 to $95 per share. However, this target price is still about 40% higher than Netflix’s most recent closing price. According to Kraft, investors are too focused on the decline in U.S. viewer engagement and are underestimating the company’s strong position overseas. “We believe the company’s current growth prospects are undervalued,” he wrote. Barron’s also notes that billionaire Bill Ackman’s Pershing Square fund bought Netflix shares earlier this year at roughly current prices.

As for Disney, its stock has fallen more than 8% since the start of the year and is trading at 15 times projected earnings for the fiscal year ending in September and roughly 14 times expected earnings (more than $8 per share) for the current fiscal year, which ends in September 2027, according to Barron’s. Supino of Wolfe sees Disney’s stock as offering “a very good risk-reward ratio,” though he acknowledges the risks associated with intense competition in streaming and rising capital expenditures for theme parks. The analyst believes Disney has one of the best asset portfolios in the industry: primarily theme parks, streaming, and other services sold directly to consumers, as well as television, including ESPN.

Supino notes that Disney is trading at about nine times its projected EBITDA for the next 12 months. This is only slightly higher than Paramount’s multiple (about seven times), and Paramount’s valuation already factors in ambitious synergy targets. Excluding synergies, Paramount is trading at about 10 times its projected EBITDA, the analyst calculated.

This article was AI-translated and verified by a human editor