A Chance for an Apple Buyout Offer as Netflix Stumbles

By Douglas A. McIntyre Updated Jan 13, 5:34AM EST · Published Jul 19, 9:05AM EDT

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A Chance for an Apple Buyout Offer as Netflix Stumbles — © Thinkstock

[cnxvideo id=”655420″ placement=”ros”]Netflix Inc. (NASDAQ: NFLX) has either hit a huge bump in the road, or the dynamics of its growth have changed completely. Either way, its stock sold off in double digits after its earnings announcement, which makes it cheap, according to analysts, who say the sell-off is an overreaction. Either way, Apple Inc. (NASDAQ: AAPL), by far the most likely owner of Netflix, other than Netflix shareholders, has a unique opportunity to make the most important M&A move in its history and bulk its increasingly important content business.

On the surface, Netflix did well last quarter. It had earnings of $0.09 per share, compared to the consensus forecast of $0.02 per share. However, it added only 160,000 subscribers in the United States, against an anticipated 500,000, and added 1.5 million overseas, against the 2 million expected. Another point that should be taken from earnings is how low margin a business Netflix is. Its net income was $41 million on revenue of $2.1 billion.

While some experts blamed the slowing subscriber growth on price hikes, others see the problem as one of competition. It may be argued that Netflix competes against Hulu, Amazon TV and streaming video, as well as Apple. The universe is larger than that and includes, at least, cable, satellite and fiber-based TV.

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Apple’s major problems are twofold. The first is that the growth of its core iPhone business has slowed. The iPhone 7 may not be different enough from the iPhone 6 to change that substantially. The other is that Apple once dominated the online premium content business via iTunes. The competitive market has changed radically since then. Apple is not the leader in the video content business, and it has no clear means to become the leader unless it buys a business in a poll position.

Netflix’s market cap was cut to $35 billion, and its share price dropped close to its 52-week low. Money is not a problem for Apple. Its market cap is $550 billion, and it has $225 billion in cash, short-term and long-term investments on its balance sheet.

Apple is faltering on two fronts. A buyout of Netflix would more than steady it on one of them. That would leave “only” the iPhone 7 problem.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.