There has been some speculation on the Fool's Netflix discussion board as to what the company intends to do with the $100 million it recently raised from selling more shares. According to a recent interview with Netflix CEO Reed Hastings, there are no nefarious plans afoot to acquire Blockbuster
Hastings says he will just "put it in the bank," given that several potential competitors are sitting on massive cash balances. Reed singles out Yahoo!
The interesting things here are the companies Hastings sees as potential competitors, and the reasons he's piling up cash now rather than later. I don't think that anybody expects Apple or Yahoo! to start shipping DVDs around the country. Hastings' strategy lends some more credibility to Netflix's plans to move into movie downloads, and fairly soon at that. You don't stock up on reserves now for scenarios that are still years down the road.
On the other hand, Hastings mentioned that he sees a lot of room for growth in the DVD-rental market, since his company's $1 billion of trailing revenues is still a small number next to Blockbuster's $6 billion or Movie Gallery's
Still, I think it's important for Netflix to get in on the ground floor of the coming revolution, work out the kinks in the system early on, and start building a customer base right away. That way, the company won't have to play catch-up to Amazon
Further Foolish reading:
- Foolish colleague Rick Munarriz was also wondering about the extra $100 million.
- He also took a peek at the Blockbuster lawsuit.
- Check out the pro and con cases on Netflix.
- And remember, the biggest companies aren't always the biggest winners.
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