Neither Apple Nor Microsoft Are Buying Netflix

Netflix (NASDAQ: NFLX  ) would apparently look good on the arm of Apple (NASDAQ: AAPL  ) or Microsoft (NASDAQ: MSFT  ) .

Jim Cramer played up the video service as a potential acquisition target on CNBC's Mad Money show on Monday night.

However, instead of going the more common Amazon.com (NASDAQ: AMZN  ) route, Cramer only singled out Apple and Microsoft as logical buyers.

Tying the knot with Netflix
Apple, according to Cramer, "needs a mobile content offering as well as something proprietary to run on Apple TV."

He also suggests that Apple needs to make a meaty acquisition to wake up its freefalling shares: "How do we reverse that? Netflix!"

Cramer also argues that Microsoft should bid $13 billion for Netflix, a 30% premium to where it is now.

"Don't rule it out," he argues. "Why should this monster stay independent with its 27 million subscribers and Steve Ballmer desperate to leave a legacy?"

Both possibilities make sense, but they seem flawed after thinking them through.

Apple is being widely criticized for stashing $137 billion in cash as growth prospects peel away. The theory that the iEverything titan needs something proprietary for Apple TV isn't necessarily a good reason to buy Netflix. If the plan is to tie Netflix only to Apple TV owners, it would be merely keeping a Ferrari in the garage. Netflix's global appeal is easy accessibility, and that means not tethering it to any particular platform. Anything that would limit Netflix's subscriber count would also limit its ability to pay for content.

Microsoft makes more sense, especially since it was pretty suspicious when Netflix CEO Reed Hastings stepped down from Microsoft's board last year. There must have been something there.

However, the notion that Microsoft can sweep Netflix away for $13 billion is poorly conceived. A year ago, Netflix could've been had for half that price. Its stock was out of favor. Now that analysts are jacking up targets and subscribers are topping 33 million globally, do you really think Netflix and its shareholders will consider an exit strategy?

Apple, Microsoft, and Amazon could've probably had Netflix at the nadir of the Qwikster fiasco. They would have been welcomed as saviors.

They would've gotten a great price. Apple would make sure that the iOS Netflix app would be the best. Amazon could retire its less popular Amazon Prime streaming offering. Microsoft could've kept a cool toy from its rivals, making it the cornerstone of the new Xbox experience.

However, it's too late to buy Netflix. The only ones buying Netflix now are tomorrow's investors.

Recommended reading
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool released a premium research report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.


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  • Report this Comment On April 03, 2013, at 6:53 PM, verylargelarry wrote:

    This underlying assumption here is that Apple and Microsoft and Amazon would not be wise to spend their money acquiring NFLX.

    Since when is spending its money wisely a notable characteristic of these companies?

    Apple doesn't do anything with its money. Microsoft seems clueless. Amazon throws money into zero margin enterprises ceaselessly.

    Although I remain long of 3 of the four companies here (no MSFT) I see no new direction clearly present. At the end, its a guessing game.

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