David Ellison got what he wanted. Now comes the hard part.
Skydance -- the name of the merged company that combines Paramount and Warner Bros -- is a dicey bet. It has high debt, aggressive financial targets, and integration challenges. And it faces a tough industry backdrop, particularly in TV, which accounts for more than 60% of its profits.
For investors in the out-of-favor entertainment business, Netflix and Walt Disney look like better plays.
Ellison, the 43-year-old son of Oracle Chairman Larry Ellison, set his sights on Warner Bros. Discovery soon after his smallish Skydance Media took control of Paramount in August 2025.
With the continuing financial backing of Larry Ellison, Paramount then outbid the much larger Netflix for Warner Bros., paying over $100 billion including assumed debt.
That merger closed this past week after Paramount succeeded in overcoming antitrust objections, and Skydance will be one of the leaders in the media and entertainment business with annual revenue of about $70 billion.
Skydance will control such assets as the Paramount and Warner movie studios (making it the biggest player in Hollywood), a large TV business including the CBS network and CNN, and a top five streaming platform.
That's the good news. The bad news is that Skydance will start with net debt of almost $80 billion and an ambitious multiyear schedule for reducing it. By contrast, Disney has about $40 billion of net debt and Netflix $5 billion.
Some of the negatives already are reflected in Skydance's depressed stock. The stock trades around $9.25 a share, leaving the stock close to its 52-week low of $7.62 and less than its 52-week high of almost $20 a year ago.
For those partial to Skydance, the better risk/return could be the company's debt. A 10-year publicly traded bond of the former Paramount -- the 6.875% issue due in 2036 with cusip or identifier 925524AX8, trades now with a yield of 11%.
That bond is risky, carrying junk-grade ratings of single-B, and is junior to the $52 billion of new debt that Skydance sold last week. Indeed, the high yield on Skydance debt is a warning sign to potential equity buyers. The bonds sit ahead of all of the company's equity, including the Ellison family's large stake.
Netflix and Disney have higher valuations than Skydance, but also better businesses, stronger balance sheets, and more attractive growth outlooks.
Netflix stock, at about $71, trades for just over half of its July 2025 peak and for a reasonable 18 times projected 2027 earnings. Disney shares, at $107, are off about 5% this year and little changed over the past 10 years. The stock trades for under 14 times estimated earnings in its fiscal year ending in September 2027.
Deutsche Bank analyst Bryan Kraft recently upgraded Netflix to Buy from Hold while reducing his price target to $95 from $100 a share.
His view is that investors are overly focused on Netflix's U.S. challenges from decreased viewer engagement and the potential threat from artificial-intelligence agents like Meta Platform's Muse to its subscription model.
More important is Netflix's large and growing international business, where the company has a "long runway for household penetration, engagement, pricing, and advertising monetization." Kraft also noted that Netflix's earnings could grow 23% in 2027 and 16% in 2028. "We think the current growth outlook is undervalued," he wrote. His opinion is that AI is more positive than negative for Netflix, thanks to the potential for lower costs to create content. Another fan is billionaire Bill Ackman, whose investment firm bought a stake in Netflix this year at about the current price.
Wolfe Research analyst Peter Supino, meanwhile, sees a "very good risk/reward" in Disney while acknowledging risks related to a highly competitive streaming business and increased capital spending for its theme parks, the most valuable part of the Disney empire.
Disney has one of the best asset portfolios in the industry, led by its theme parks, movies, streaming, and TV business, including ESPN and ABC.
Disney trades at about nine times projected earnings before interest, taxes, depreciation and amortization, or Ebitda, in its fiscal year ending in September 2027. Ebitda is a common media and entertainment financial yardstick, and Disney is historically cheap and has about the same Ebitda multiple as Skydance before its projected synergy benefits from the Warner merger.
Skydance amounts to a contrarian story now. Of the 25 analysts tracked by Bloomberg who follow it, only two have Buy ratings and 10 have Sells. But sometimes it pays to heed the consensus view.
Skydance is determined to prove the doubters wrong. The company issued financial guidance that calls for mid-single digit annual revenue growth through 2030, and annual synergies of $6 billion (from cost-cutting and other initiatives) to be 70% achieved in two years. All of this is promised to boost Ebitda to $18 billion, and produce $10 billion or more of free cash flow in 2030. Skydance also is seeking to slash its debt load.
A confident David Ellison told CNBC on Thursday that after the Warner deal, Skydance is "positioned to win in every single vertical that we compete in." He said the company now has scale in streaming, five of the top 10 cable networks, and a unmatched sports portfolio anchored by the National Football League on CBS.
Skydance will have over 200 million global subscribers behind only Netflix, and a No. 5 presence in the U.S. based on consumption behind Alphabet's YouTube TV, Netflix, Disney, and Amazon.com's Prime Video service.
Wall Street, however, sees a tough lift for Skydance. Wolfe's Supino is doubtful that revenue can grow through 2030 -- against the mid-single digit corporate target -- due to declines in the Skydance TV business.
UBS analyst John Hodulik wrote last week that Skydance must contend with a "leveraged balance sheet" and a "linear TV business that still represents about two-third of profits with meaningful exposure to general entertainment programming" that is at risk from streaming. He has a Sell rating and price target of $8 a share.
One encouraging sign for Skydance is that a group of investors, including the Ellison family, investment firm Redbird Capital Partners, and Middle Eastern sovereign-wealth funds, are due to purchase $47 billion of new Skydance equity at $12 a share, a large premium above the current stock price.
That equity raise, which helped cash out Warner Bros. shareholders for almost $80 billion at just over $31 a share, will be highly dilutive, ballooning Skydance's share count to more than five billion from 1.1 billion.
Skydance public shareholders also are slated to receive one warrant -- a long-term call option -- for each share of Skydance. The warrants will begin trading on Tuesday, Oct. 13, on the New York Stock Exchange, and Skydance stock is due to go ex-dividend for the warrants on Wednesday.
The warrants have a 10-year maturity and exercise price of $12 a share -- matching the price paid by the investor group for Skydance stock. Nearly 500 million warrants will be issued.
While there is no intrinsic value in the warrants because Skydance stock is well below the exercise price, the warrant will have value -- perhaps $2 to $3 each -- because of the long time until maturity and the chance that Skydance stock will rally. The warrants amount to a nice bonus for shareholders.
Skydance stock could be volatile, due to the warrant issuance and thin public float of about 10% of the total shares outstanding of five billion.
