In a rumored deal that may prove to be "too little, too late," BusinessWeek is reporting that Amazon.com (NASDAQ:AMZN) made a private offer to acquire Netflix (NASDAQ:NFLX) at $42 a pop two weeks ago.
The proposed pairing makes perfect sense in theory. Amazon and Netflix are both golden brands in online retail. In the United Kingdom, Amazon has already launched a service similar to the DVD rental model pioneered by Netflix, but it has been hesitant to compete against a Netflix that is at the cusp of vanquishing Blockbuster (NYSE:BBI) stateside. Just close your eyes and picture how dynamic Netflix queues would become if they were incorporated into the lively database-driven community of Amazon's IMDB.com. Netflix is often left with a surplus of catalog titles, months after their initial release, and Amazon is all about selling new and used wares.
So, sure, they were made for each other, but is $42 a share too much to pay? Will Netflix even settle for $42 as a buyout price?
This brings us to Amazon's biggest failure in all of this -- it should have built up the nerve to hook up with Netflix sooner. Back in October, Netflix announced that it was lowering its prices as a pre-emptive move against what it believed was the real possibility of Amazon entering the market. That's when Amazon should have attacked -- while there was blood in the water. Netflix shares lost 40% of their value that day. A few months later, the stock would trade for as little as $8.91 a share, with the outlook appearing rather bleak.
Having Amazon storm in the next day with a public offer to swallow Netflix for $20 a share would have probably been a layup back in March. What took you so long, Amazon? Since then, Netflix has bounced back to profitability and introduced attractive high-margin rental plans as Blockbuster has teetered closer to bankruptcy with every passing debt payment. It has also gone on to establish an ad-selling team, sell used DVDs, and watch Wal-Mart (NYSE:WMT) bow out of the online rental market.
You blew it, Amazon. Now you're down to paying twice as much as you could have in the spring, and it may still not be enough. It's a lot like Disney (NYSE:DIS) and Pixar (NASDAQ:PIXR). Why didn't Disney buy out Pixar years ago, when it could have had the movie company for a fraction of today's price? It figures. Both Pixar and Netflix have been winning selections in the Motley Fool Stock Advisor newsletter service.
Sure, companies need time to complete their due diligence. It's the same dilemma we face as investors. However, as any stock investor knows, if you believe that something is worth buying into, it's because you feel that it will appreciate in the future. The longer you wait, the more you may wind up paying.
Netflix believes that it will have 20 million subscribers in as little as five years. Are you going to wait until then, Amazon? When Netflix is five times larger than it is today?
Amazon.com is also a recommendation of Motley Fool Stock Advisor.Take a free trial of the newsletter service today and see which companies Fool co-founders Tom and David Gardner have selected this month and in the past.
Longtime Fool contributor Rick Munarriz is a Netflix shareholder and plans to stay that way. He also owns shares of Disney and Pixar. T he Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
