Is it time for Apple to buy Netflix?
The movie rental company's shares can be hazardous to your portfolio's health, and its survival hinges on one thing: being acquired.
Two weeks ago, as shares of Netflix (NFLX) were trading at $86.65, I asked whether the struggling Internet movie streaming giant can stay afloat and survive the unrelenting assaults it continues to receive not only from rivals such as Amazon.com (AMZN), Time Warner (TWX) and Coinstar (CSTR) (Redbox) but also from those that have yet to fully enter the market -- such as Apple (AAPL) and Google (GOOG).
My question was obviously rhetorical, and I followed up that article with another one listing the reasons Netflix couldn't survive those attacks.
Since then, the company has done little to dispel doubts about its future, and its shares have dropped 32%. The only question now is how swift the company's demise will be.
The problem is its outlook and its slowing subscriber growth. The company said that although it expects to remain profitable in the third quarter, it is forecasting a fourth-quarter loss due to international market expansion.
Wall Street wasn't impressed, and the stock plunged as much as 13% in after-hours trading.
What's more, the company seems to continue to ignore its DVD market. Remember those shiny red envelopes that arrived in the mail? The same ones that sent Blockbuster stores to their grave?
Though that model once helped Netflix grow to prominence, the company's recent lack of marketing in that area has caused the service to shed subscribers, and the losses are a drag on the gains in the domestic Internet streaming business.
Making matters worse is that the company projects 600,000 to 900,000 more DVD subscribers will cancel the service, while domestic streaming subscribers will increase only 1 million to 1.8 million in the quarter. The full-year guidance for streaming growth is 7 million, a not-so-impressive figure, considering the cancellations on the DVD side.
Be that as it may, Netflix insists that it is driven to expand internationally, particularly into areas such as Latin America and continental Europe, even if that expansion wipes out near-term profits. A very disappointing statement, if you ask me. Because for as much as it is trying to expand, it is doing this in markets with severe economic problems.
Perhaps a change in focus is warranted until Europe gets its act together -- at least that would be the option for a smart management team.
But given Netflix's management's lack of vision, the company's survival hinges on one thing and one thing only: being acquired. I think it is time for Apple to step up and buy Netflix.
It is no secret that Apple has television plans. With Netflix's existing subscriber base and popular brand Apple can take over its fledgling business, restore the promise that Netflix once had and immediately light a fire under Google and Amazon. With these three vying for a key spot in the living room, Microsoft (MSFT) also might be compelled to make a bid for Netflix. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
The question is how much it would take to make a deal happen. With Netflix currently trading for less than $58 -- down from $300 a year ago -- would Reed Hastings and the board accept an offer of less than $150 per share? It may not be in a bargaining position, however, when its death appears inevitable if it continues to go it alone.
It would seem that investors agree, based on the recent stock activity.
The Netflix narrative is pretty straightforward. The advantages that the company enjoyed at the peak of its DVD rental dominance have evaporated.
Within the streaming market, it doesn't have the same leverage. Analysts are aware of this, and some have started to slash 2013 EPS estimates from $2 to 60 cents, a 70% reduction.
The stock likely will continue to decline to reflect such a lowered outlook, and it would come as no surprise to me to see shares drop to the $40 to $45 range.
This is why I will avoid this stock even though I love Netflix's service.
More from TheStreet.com
I'm not a big Netflix defender.. really I'm not.. but their demise is not even close to being a sure thing.
Please stop trying make buyouts and mergers happen. Competition is good.
Jobs Growth..........my a s s
we are looking at 20%+ unemployment and underemployment
20% in California, 26% in Nevada.............
who is Liberal enough to twist the numbers
who do you think we are..................as dumb as you are?
Reality check coming up in November.
If Obama keeps his job, YOU will lose yours
If Obama loses his job, YOU will keep yours
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The retailer labels the character's fake memoir as non-fiction. This comes weeks after it categorized the the Bible as fiction.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.