Legacy tech titan Microsoft Corp. (MSFT) could look to make a blockbuster bid for Netflix Inc. (NFLX) as it attempts to push into the high-growth streaming business, according to one media industry analyst with over four decades of experience on the Street.
Veteran media analyst Porter Bibb of Media Tech Capital Partners made the bold prediction for Microsoft to acquire Netflix on CNBC's "Squawk Box," suggesting that buying the on-demand video streaming giant makes sense for the global IT provider, which currently does not have any content. "They're moving as fast they can into the cloud business. They don't have any direct to the consumer content delivery," said the managing partner.
Netflix has been highlighted as one of the most expensive picks in an already pricey tech space. The FAANG component has seen its shares skyrocket nearly 70% year-to-date (YTD) and a whopping 108% over the most recent 12 months, far outperforming the broader S&P 500's roughly flat trade and 11.3% return over the same respective periods. By comparison, the Nasdaq Composite Index is up 5.2% YTD and 19% over 12 months. NFLX is trading at a price to earnings multiple of 219.5, compared to the average company in the Nasdaq Composite Index with a P/E ratio of 32.1. NFLX trades at a forward 2018 P/E ratio of 107.5. (See also: Netflix Skyrockets on Higher Subscriber Growth.)
NFLX Could Put MSFT's Cash to Good Use
While Netflix, with a market capitalization around $139 billion, may seem like an odd takeover target for the Redmond, Washington-based tech giant, Microsoft has been highlighted as being among the tech giants sitting on a mounting pile of cash ready to be put to use. Microsoft's deep pockets could prove valuable for the Los Gatos, California-based streaming platform as it ramps up its spending on original content, projected to reach as high as $8 billion in 2018, as the firm wards off competition from players such as Walt Disney Co. (DIS), Hulu and Amazon.com Inc. (AMZN).
Old-guard tech titan Microsoft, with a market cap of $739 billion, has seen its stock jump near 12% YTD and 38.8% over the year, boosted by quarterly profits that beat the Street's forecasts and fueled the bullish outlook for MSFT's hybrid cloud platform Azure as it heads off against Amazon Web Services and Alphabet Inc.'s (GOOGL) Google Cloud.
Bibb's prediction comes amid chatter in the media space regarding a potential M&A shakeup. CNBC reports that Comcast Corp. (CMCSA) is expected to make an all-cash bid for Twenty-First Century Fox Inc.'s (FOXA) entertainment assets if the White House approves AT&T Inc.'s (T) bid for Time Warner Inc. (TWX.) (See also: Microsoft CEO: Our Cloud Will Beat AMZN, GOOG on Customer 'Trust'.)