Netflix, Blockbuster Shares Go in Opposite Directions

13 Jul, 2009 By: Erik Gruenwedel

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Shares of Netflix July 13 soared to a three-month high following renewed scuttlebutt the online DVD rental pioneer could be acquired by a major media player, possibly Amazon.

A Netflix acquisition has been grist for Wall Street rumormongers for the past two years after rival Blockbuster made a strong push for online subscribers with Total Access, whereby members could rent online and return in-store.

At the time, Microsoft was considered a serious suitor, with Netflix CEO Reed Hastings sitting on the Microsoft board. The Los Gatos, Calif.-based service’s shares closed at $42.19, up more than 5.29%.

Netflix, as a rule, does not comment on stock price valuations or market scuttlebutt. An Amazon representative was not immediately available for comment.

Conversely, shares for No. 1 DVD rental service Blockbuster fell 4 cents (6.45%) to close at 58 cents, which amounted to a 82% drop from a 52-week high of $3.19 per share Aug. 6, 2008.

Arvind Bhatia, analyst with Sterne Agee in Dallas, said rumors about Netflix didn’t necessarily impact Blockbuster. Blockbuster’s stock decline he said had more to do with the ongoing sluggish retail environment.

“Same-stores sales in retail in June continued to be weak,” Bhatia said. “[The stock decline is] more market-driven than anything else.”

Edward Woo, research analyst, with Wedbush Morgan Securities in Los Angeles, said Blockbuster worries were likely driven by continued positive news on Redbox, which he said is seen as a direct competitor.

“I don't think acquisition news today would move Blockbuster shares, especially since we don’t believe in the Amazon rumor due to there being too many sales tax issues,” Woo said.

Amazon is reportedly shedding affiliates in North Carolina, Rhode Island and Hawaii because it doesn’t want to have a presence in states that would force it to collect sales tax.

Bhatia said with Netflix riding high throughout the recession, a potential suitor would have to pay a significant premium on the service’s already escalated share price. Bhatia said that would be problematic given the current market climate.

“At a distance the stock looks a little expensive to us,” he said.

Online financial services firm concurred, saying Netflix could afford to pass on third-party suitors, including Amazon and Microsoft.

“It no longer makes dollars or sense,” The Fool’s Rick Munarriz wrote online.
 

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