Streaming giant Netflix (NFLX) is looking to scoop up a historic Los Angeles studio lot at a fire-sale price, as it pivots toward owning production infrastructure in a market that's seen better days.
Netflix has entered talks to buy Radford Studio Center after lenders led by Goldman Sachs (GS) repossessed the property. Sources told Bloomberg on Tuesday that the final price is still under discussion, but could come in at less than one-third of its $1.85 billion 2021 valuation. The deal hasn't closed yet, but Netflix is clearly hunting for a steal.
The potential purchase follows a sharp decline in Los Angeles studio real estate values, driven by higher interest rates and reduced production after the 2023 writers' and actors' strikes. Hackman Capital Partners, the previous owner, defaulted on $1.1 billion in debt and handed the keys to lenders. Data from FilmLA shows soundstage occupancy dropped to 62% in the first half of last year, highlighting just how much demand has softened.
Netflix is considering consolidating its real estate footprint as it moves away from leased properties, including spaces rented from Hudson Pacific. The company has increased investments in studio assets, including a $1 billion production facility in New Jersey. With $12.3 billion in cash and a recent $2.8 billion breakup fee from the Warner Bros Discovery (WBD) bidding process, Netflix appears well-positioned to capitalize on distressed assets like Radford.
Guggenheim's Michael Morris said Netflix remains a Buy, emphasizing strong long-term growth despite recent stock volatility. He explained that the recent pullback reflects high expectations, noting more than 80% of investors had anticipated a margin guidance increase that did not materialize. Still, he added that the stock offers an attractive valuation based on its multi-year growth outlook and includes additional "option value."
Morris said Netflix continues to meet its long-term targets, describing the latest quarter as a "beat and maintain," and expects double-digit revenue growth, high-teens operating profit growth, and over 20% earnings growth through the decade. He also acknowledged leadership changes could impact sentiment in the short term, but continued leadership from Ted Sarandos and Greg Peters, along with evolving strategies like advertising and M&A, supports the company's long-term trajectory.
Netflix shares were up 0.67% at $93.20 during premarket trading on Wednesday.
