Netflix: Independent for How Long?

Now's a good time to be Netflix (Nasdaq: NFLX  ) . The company thrived during the recession, growing subscribers and net profits by 31% and 40% respectively in 2009. With reduced competition from Blockbuster (NYSE: BBI  ) , which closed 567 net U.S. stores last year, Netflix's physical DVD business should continue to expand. Online streaming is becoming mainstream; 48% of Netflix's 12.3 million subscribers streamed at least 15 minutes of video last quarter.

Cash-rich technology players eager to be at the center of consumers evolving media habits must have noticed. Here's why each player might buy Netflix.

Amazon.com (Nasdaq: AMZN  )
Netflix's streaming success would give Amazon's video offerings a boost. Like Amazon's book business, Netflix offers physical and digital products, uses scale to drive margins and provide consumers low prices, and pursues a device-agnostic strategy, offering streaming service through an array of gadgets including Microsoft's (Nasdaq: MSFT  ) Xbox 360, Sony's (NYSE: SNE  ) Playstation 3, DVRs, and Roku players, not to mention laptops. 

Resources: Amazon has $6.3 billion in net cash and marketable securities.

Apple (Nasdaq: AAPL  )
Netflix's iPad app was an instant hit, and will be followed by iPod Touch and iPhone apps. Third-party apps make Apple devices more valuable, though Steve Jobs would like it even better if consumers purchased video content directly from Apple. Apple is more than partial to its own devices. Would Netflix still have a home on Microsoft and Sony devices under Apple ownership?

Resources: With $39.8 billion in cash and marketable securities, no debt, and no plans for a dividend, nothing is beyond Apple's reach.

Google (Nasdaq: GOOG  )
Google's YouTube is an ad-supported service, but it aspires to be a player in fee-based video, too. With a limited amount of paid content, Google is a long way from having a meaningful fee-based video offering. A Netflix acquisition would change that quickly.

Resources: Debt-free Google has $24.5 billion of cash and marketable securities in the bank, and it's back in acquisition mode.

Microsoft
Microsoft's Online and Entertainment & Devices divisions have struggled. Netflix could be a shot in the arm to Microsoft's efforts to be relevant in these markets, or simply help Mr. Softy block a competitor's ambitions. As a bonus, Netflix CEO Reed Hastings is already a Microsoft board member.  

Resources: With $30.1 billion of net cash and marketable securities, Redmond can't be counted out. 

While this Fool thinks Amazon and Netflix have the greatest potential to live together happily ever after, the e-tail giant is the least wealthy contender among this cash-rich crowd.

Fool contributor April Taylor, owns shares in Apple and Google. Microsoft is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor choices. The Fool owns shares of Microsoft. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 13, 2010, at 2:58 PM, 370bayshore wrote:

    Why would the founder Hastings, CFO McCarthy and and other insiders be selling shares through March and April if company was for sale?

  • Report this Comment On April 14, 2010, at 7:54 AM, XMFTheATrain wrote:

    Hi 370bayshore,

    Thanks for reading the article. I'm not suggesting that Netflix is 'for sale', but believe that it is a unique asset that could attract a cash rich buyer. Regarding recent sales by CEO Hastings, according to data I looked at on Yahoo! Finance, Hastings still holds nearly 1.5 million shares, so his interests should still be aligned with those of Netflix shareholders. Thanks again for reading.

    April

  • Report this Comment On April 14, 2010, at 7:54 AM, XMFTheATrain wrote:

    Hi 370bayshore,

    Thanks for reading the article. I'm not suggesting that Netflix is 'for sale', but believe that it is a unique asset that could attract a cash rich buyer. Regarding recent sales by CEO Hastings, according to data I looked at on Yahoo! Finance, Hastings still holds nearly 1.5 million shares, so his interests should still be aligned with those of Netflix shareholders. Thanks again for reading.

    April

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