Consumers have a lot more choices when it comes to streaming services these days, and that's not necessarily good news for Netflix (NASDAQ:NFLX). The world's leading premium digital platform was downgraded by Needham analyst Laura Martin earlier this week, arguing that Netflix could lose 4 million domestic subscribers next year given the arrival of cheaper platforms launched by Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) last month.
Disney+ and Apple TV+ are certainly not making life any easier for Netflix, with single-digit monthly price points that make Netflix seem like a luxury instead of a necessity. Martin argues that Netflix should consider an ad-supported platform at roughly half of the platform's current price, but since Netflix has long argued that it's not going that route, Martin feels that the best course of action would be for the company to put itself up for sale. She realizes that there aren't too many companies that can afford to buy Netflix. It has an enterprise value of nearly $140 billion, and if you tack on a 30% premium to potentially sway Netflix, that pushes the price tag north of $180 billion.
There are only 35 companies with market caps higher than $180 billion, and while many of them are tech and entertainment companies -- including Apple and Disney -- a lot of them aren't ideal fits as potential buyers. Let's go over Comcast (NASDAQ:CMCSA), Apple, and AT&T (NYSE:T) as three of the giants that could probably make Netflix work.
Martin specifically singles out Comcast as a logical buyer, and one that is likely kicking itself for not buying Netflix when it was cheaper. There was speculation of a Comcast buyout five years ago when Netflix commanded a market cap below $30 billion. Martin feels that buying Netflix now would be poorly viewed by the market since it didn't pounce on a deal years earlier at a lower price point, but Comcast needs Netflix now more than it did five years ago.
Xfinity is growing its broadband platform, but it has 612,000 fewer cable television subscribers than it had a year earlier. The cord-cutting revolution is real, and next year's launch of Peacock -- its long overdue streaming service -- may be too little, too late. Buying Netflix with its market leadership in online connectivity would make for a potent combination. Comcast is now a year removed from its Sky deal, so it's going to need a new toy to offset the year-over-year organic slides. Martin feels that Netflix could be making $6 a month in advertising, and it could use that to lower its monthly rate. Netflix would never go this route, but Comcast wouldn't flinch in the process, either.
Apple is now the world's most valuable company by market cap, and it's flush with cash. Apple TV+ also isn't making the same kind of waves as Disney+, and that leads us to Netflix. Apple is all about premium services, and that's where Netflix is presently perched as a true globetrotter.
The appeal for Apple to milk more money out of Netflix than it's already doing rests in Apple's on-demand premium digital rentals and purchases. Subscribers to Apple TV+ are presented with various options for new or recent movies available as one-time digital rentals or online purchases. Apple would love to have its paws on Netflix's more than 158 million premium accounts, and it would have no problem trying to get them deeper into Apple's ecosystem.
A telco buying Netflix wouldn't be a surprise. Just like Comcast, AT&T is shedding pay TV customers, and at a more alarming clip. AT&T already made a content play in Time Warner, but now it needs a win in platform reach.
Netflix checks off a lot of hungry boxes for AT&T, and it only helps that it's something that could enhance AT&T's thriving wireless offerings by bundling Netflix access into smartphone plans the way some of one rival does with Disney+. AT&T may be the least likely player of the three, especially since it's battling activists at the moment. However, AT&T is desperate enough to cut a deal with the top dog in a niche if it ever wants to be seen as a growth stock again.