Along with Netflix’s recent strong fourth quarter results and surge in share price came renewed rumors of an Amazon.com buyout of the by-mail and streaming company. Not everyone in the media agrees with the new rumors, however. The Wall Street Journal has run a piece saying that Netflix is now more attractive to Amazon than ever, while the Motley Fool has run an opposing piece listing reasons why the buyout rumors are and will remain just that: rumors. Here are the opposing viewpoints:
The Wall Street Journal
Due to increased numbers of Netflix subscribers using the company’s streaming service, as well as an increase in the overall number of subscribers to 12 million, “There is now even a higher possibility’’ of a buyout, according to Collins Stewart investment firm analyst Sandeep Aggarwal.
Aggarwal says that Amazon, which has not seen great success with its VOD business, would like to tap Netflix’s 12 million subscribers. The analyst also believes that such an acquisition would be commensurate with Amazon’s recent strategy, as evidenced by its recent purchase of online shoe giant Zappos. Said Aggarwal:
“If someone is a category leader and it is still growing rapidly, they go ahead and acquire it,’’
The WSJ also suggests that the disparity between Netflix’s and Amazon’s price-to-earnings ratios (the latter’s is nearly double the former’s) is indicative of a good time for Amazone to buy.
The Motley Fool
The Motley Fool lists the following as the top three reasons why the takeover rumors and the WSJ article should be disregarded:
- The Netflix culture only seems close to the Amazon climate on the surface. Dig a little deeper into Netflix and you’ll see a cutthroat business environment where execution is everything. “In many companies, adequate performance gets a modest raise. At Netflix, adequate performance gets a generous severence package,” say the firm’s recruitment materials. Recruitment, as in “this is how we attract new workers.” At Amazon, there’s just a vague “bias for action.” While this combination might work better than Microsoft (Nasdaq: MSFT) and Yahoo! (Nasdaq: YHOO) ever could (or Oracle (Nasdaq: ORCL) plus Sun Microsystems ever will, it’s not the perfect match you might think.
- The tax implications for Amazon are still very real. Yes, the company is building more distribution centers, which increases the sales tax load, but Amazon is picking those spots with care. Buying Netflix would instantly require Amazon to charge sales tax from Hawaii to Maine, from Key West to Fairbanks and everywhere in between. No sir, no way.
- So Amazon should buy Netflix for the streaming video operation and drop the physical DVD distribution, right? Wrong. Let’s say that Amazon forks over $4 billion to buy Netflix — a modest 20% buyout premium over the $3.3 billion enterprise value. That’s $333 per Netflix subscriber. Then Amazon turns off the DVD faucet and watches the 52% of current Netflix customers who don’t watch online video scurry away, not bound by any long-term contracts. The remaining 5.8 million new clients just got a lot more expensive. In reality, the carnage would be even more grisly. Many Netflix customers, myself included, do watch some streaming films but are mainly in it for the discs.
The Fool also believes that a few years down the road, once digital streaming is more mainstream and the majority of Netflix subscribers are using the service, will be a much more opportune time for a buyout.
What do you say, Insiders? Take a minute to hit the comments and let us know which way you’re leaning on this issue. How do you think the consumer would benefit or be harmed by an Amazon/Netflix buyout?