Netflix Might Be Ready to Buy Something Again, but It's Not What You Think
Key Points
Netflix shares have fallen 41% over the past year, taking a hit following every quarterly report.
The stock has also slipped after many missed connections on the acquisition front, sometimes getting whipsawed in the process of acceptance and rejection.
Netflix is making smaller waves on the buyout front, and that's how you quietly reestablish market leadership.
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If Netflix (NASDAQ: NFLX) were a contestant on its popular Love Is Blind reality dating show, it wouldn't end with successfully exchanged vows at the altar. The world's leading premium streaming video service has loved and lost a lot lately, realizing that promising chatter with potential partners in the pod rarely pans out in the real world.
- Netflix emerged with a firm commitment in the bidding war for Warner Bros. Discovery, only to be swept off its feet by rival Paramount Skydance offering a larger dowry.
- In the days following the Fox acquisition of Roku, there was a report that Netflix was outbid for the connected TV pioneer. The story was later updated to clarify that Netflix may or may not have been sniffing around, but it never submitted an offer.
- Rumors have swirled that Netflix might be interested in Lionsgate or any other storied content creator that may be on the block, but Netflix has either denied the courting or suffered silently in solitude.
Netflix can't seem to make a love connection with potential acquisition targets. It also doesn't seem to be hitting it off with investors, given the stock's sharp slide in recent months. Help could be on the way, especially if the small ball game it seems to be playing starts to pay off.
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The road to perdition
Netflix has delivered generational wealth to its longtime investors, a 600-bagger since going public 24 years ago. However, Netflix stock has been painful to own for more recent investors, down more than 40% over the past year.
The downticks aren't entirely due to Netflix's failure in recent whale-hunting expeditions. It has routinely delivered disappointing results or guidance, with shares trading lower in the weeks following each of its last four quarterly updates.
Netflix is going through a confidence crisis with investors, and that's been painfully clear whenever its name is tied to a potential acquisition target. The stock has declined after someone else walked away with a potential prize, but it's also taking a hit as a consolation prize when it falls short.
Netflix announces a deal for Warner Bros. Discovery? It gets hit. It gets outbid, meaning it collects a $2.8 billion buyout termination fee? It gets hit. It's damned if it says "I do" and it's damned if it says "I don't."
The road to redemption
Variety reports that Netflix is one of the parties in the running to acquire Letterboxd, a fast-growing film-review platform with a social-networking bent reaching 30 million members worldwide, a roughly 50% increase over the past year. Letterbox is reportedly looking for a price tag in the $250 million range.
It would be a good catch for Netflix, strengthening its ties with tens of millions of movie buffs. Netflix already has a strong global reach, with more than half of its 325 million users outside the U.S. market. Some may argue that a trendy reviews platform owned by a major streaming service could introduce bias, but it's not without precedent. Critic reviews hub Rotten Tomatoes was owned by Peacock-parent Comcast for years before its recent spinoff. Amazon continues to own the cast-and-crew database IMDb.
If successful -- and that's far from a lock with other players in contention, as we've learned before -- it would join Netflix's recent deal to acquire Radford Studio Center, a historic California film and television production studio. That deal is expected to close later this quarter.
A production facility enables Netflix to ramp up its content production. A film buff site enables Netflix to ramp up subscriber engagement. Neither deal will break the bank for Netflix. It might not move the needle, either, but Netflix is taking small steps to grow beyond its own organic efforts. Netflix doesn't need to find love by becoming a celebrity power couple. It just needs to focus on what has gotten it this far. Padding its empire with logical and cost-effective deals is just the cherry on top of a heart-shaped sundae that no one seems to be eating -- for now.
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Rick Munarriz has positions in Comcast and Netflix. The Motley Fool has positions in and recommends Amazon, Netflix, Roku, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
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