Is Amazon Attempting a Buyout of Netflix? (NFLX, AMZN)

The Stalwart submits: Several months ago we speculated that Netflix (NFLX) might be on the block and that Amazon (AMZN) would be a logical partner. There haven't been many developments on that front since then, but now the rumors are starting again, and getting picked up in the press.

This is from BusinessWeek:

But Netflix's stock surge may also relate to the plans of a much-feared potential competitor: Amazon.com. Banking sources credit much of the move to rumors that Amazon had made a private, $42-a-share bid for Netflix in the past two weeks. Both companies declined to comment. Several Netflix directors privately cast doubt on the talk, however, saying it's only the latest of many rumors that have surrounded their company.

Last year, Netflix had said it expected Amazon to enter the U.S. video-rental market after testing the concept in Britain and Germany. Yet, with Amazon's British service trailing in market share in that country, Netflix now thinks Amazon will stay out of its business.

So, is Netflix really takeover bait? At some point, and some price, the answer is probably yes. Analysts are split on whether $42 a share, which represents nearly a 50% premium over today's stock price, is too much to pay. Through the first nine months of this year, Netflix posted $492 million in revenue, but made just $3.8 million in net income, as it fought off Blockbuster's marketing barrage. For next year, Netflix is promising only "at least $60 million" in pretax income.

The article also gives reasons why Netflix might be a better fit with with a telecom or cable company, and not Amazon.

Related:

• All Internet Stock Blog articles on Netflix and Amazon.
• Other articles on the Seeking Alpha Network by The Stalwart.

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Comments

[borisb]

My first analyst suggestion for the site, and this is above average. Amazon.com may have offerred $42 a share or $2.2 Billion for Netflix. I think this is fairly low for Amazon and here is way. In 2006 Consenus among 16 analyst is that Netflix will bulk up towards $1 Billion revenue with a robust growth rate. $1 Billion in sales is about $450-$500 million in pre tax gross profits. Thus Amazon would be paying roughly 4.5x 2006 pregross profits. Amazon.com stock itself sells for 7.0x consensus 2006 pre gross profits. So this would be an accretive aqusition from the get go, plus increase Amazon.com customer base by nearly 5 million, plus Amazon.com would be able to offer next day fulfillment on $2-$4 Billion of its annual light media sales, without extra shipping fees, assuming the sales tax issue is resolved for the best. Amazon.com decided to stop being stingy and offer $42 only because it is now clear, that from July 1 2005 - March 31 2006 netflix will pickup nealy 2 million subscribers while Blockbuster Online will not grow its subscribers at all, stunted and out of cash at 1 million subscribers.

2005 Nov 12 02:49 PM