Netflix Inc. NFLX has shed over 52% for the year-to-date period even as the company has embarked on a turnaround plan following a massive loss of net paid subscribers earlier this year. A report explored the possibility of the streaming giant being an object of interest to another large-cap tech company.
What Happened: Software giant Microsoft Corp. MSFT could be interested in buying Netflix, given CEO Satya Nadella’s past track record of pursuing inorganic growth or growth via acquisitions, Reuters reported.
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Since assuming the reins of Microsoft in 2014, Nadella has been focusing on pricey acquisitions, the report said. The company’s purchases under him included Mojang, the company behind the Minecraft game, professional networking platform LinkedIn and AI software developer Nuance.
Microsoft has now agreed to buy Activision Blizzard Inc. ATVI, although the deal has been stymied by regulatory hurdles.
Microsoft-Netflix – Best Fit? Microsoft and Netflix are already aligned, with the latter having roped in the former as an advertising partner for its new ad-supported subscription service. The report also noted that Microsoft President Brad Smith sits on Netflix’s board.
The software giant could reportedly be motivated by its desire to offer a video game streaming service over multiple devices.
The report also highlighted Microsoft’s affordability, as its market value is about 13 times of that Netflix. With a 30% premium, Netflix’s enterprise value could be about $190 billion compared to Microsoft’s current market cap of $1.8 trillion, it noted.
The report also said the deal is unlikely to face significant regulatory hurdles in the U.S. and Europe. On the flip side, cost savings could be meager after taxing the $8 billion operating profit analysts project for Netflix. The report suggests the implied return on investment would only be half of Microsoft’s 8% average cost of capital.
Price Action: Netflix ended Tuesday’s session at $288.19, down 0.04%, while Microsoft shares added 0.56% before closing at $241.80, according to Benzinga Pro data.
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