Shares of Netflix (NFLX 2.90%) have been rolling lately. Netflix stock has moved higher for six consecutive trading days, soaring 15% in total.
There are a couple of reasons for the recent bullishness. Netflix announced a big digital distribution deal with Disney (DIS 1.84%) last week. A new Netflix original movie and the second season of the popular show Bloodline premiered on Friday. The market's also been generally bullish, with the S&P 500 -- the index where Netflix was the best performing component in 2013 and 2015 -- up 2.9% in that time.
However, the biggest likely driver for the pop is the rumor-mill fodder that Apple (AAPL 1.62%) is making a play for Netflix. The story was published in the Financial Times last week. A source claims that Apple executives tried to make a play for HBO, but the negotiations never got anywhere. The article then goes on to speculate that Apple is still hungry for a media company.
"Several bankers said Apple was more likely to go after a streaming company such as Netflix than a pure content player," it concludes.
In short, we have just a few Wall Street bankers dreaming out loud -- with self-serving interests at play if they become the matchmaker intermediary. There's no meat to the story, but the pairing makes sense on many levels. The logic behind the proposed pairing is also why the chatter just won't die. Let's go over a few of the reasons this story is going around -- again.
1. Apple needs help
The market has moved on from the class act of Cupertino. The stock declined 4.6% last year. That's not much of a dip, but this is the first calendar year the stock has declined since 2008. The stock is also trading slightly lower so far in 2016. We saw earnings go the wrong way in fiscal 2013 as margins contracted, but now we're seeing sales and earnings retreat in fiscal 2016.
Apple has become a tech investor's afterthought. It put too many of its eggs in the iPhone basket, largely the fault of the fading popularity of the iPad and iPod product lines. Apple could use a new revenue stream. Netflix's trailing revenue is just 3% of what Apple is ringing up these days, but it would reinvigorate Apple's overall growth prospects.
2. Apple's strengths could make Netflix more productive
This wouldn't be a matter of simply absorbing Netflix into Apple's bloodstream. Apple's strengths in video could make Netflix better. Apple already has a well-entrenched ecosystem for delivering video rentals and purchases, especially for new movies and shows that aren't available on Netflix's digital catalog. Last week's deal with Disney will certainly beef up the vault at Netflix, but there's a lot of online content that will never participate.
How much money could Netflix make it offered its 81.5 million global streaming accounts the ability to rent or outright buy new digital releases? That's easy money with Netflix's wide client base. Netflix has been hesitant to do that, but Apple wouldn't flinch -- especially as a way to justify to its shareholders that it's paying a premium for an already richly priced dot-com darling.
3. It would fulfill Steve Jobs' final vision
One of the last projects that Apple's charismatic co-founder was working on just before he died was streaming television. Steve Jobs told his biographer that he had "cracked" the code to making it work. Five years later, Apple has little to show on this front. There is no full-fledged HD television out of Apple. There is no streaming television hub. All we have is the Apple TV, a modestly successful set-top device, but certainly not a game changer relative to cheaper alternatives out there.
Buying Netflix would change that. Apple would leapfrog to the front of the pack in this booming niche. It would be the undisputed leader instead of a second-guessed follower.
Having access to more than 80 million streaming subscribers would also provide access to market its many video-playing product lines. Jobs saw something. It's time for Apple to make sure he was right.