Netflix must ensure it has an exit strategy to avoid the Warner Bros acquisition battle "turning irrational," Bernstein analysts cautioned.

Analyst Laurent Yoon noted, "While Netflix has the financial capacity to continue bidding, that doesn’t necessarily mean it should."

He added that since its October earnings report, Netflix’s market value has plummeted by over $100 billion, and a prolonged bidding war with Paramount would further pressure its stock.

Yoon acknowledged that while Paramount’s offer is superior to Netflix’s, it does not hold an "overwhelming advantage."

"Netflix’s fundamentals remain undeniably strong, but we expect downward valuation adjustments—not just due to the bidding process and regulatory hurdles even if successful, but also because investor scrutiny will persist," he explained.

Yoon maintains an Outperform rating on Netflix with a $125 price target.

Bloomberg data shows Netflix currently holds 39 Buy ratings, 14 Holds, and 3 Sells, with an average price target of $128.