I would read this: There’s still life in at least one of the “FAANG” stocks: Netflix is up 12% on the day. But a few readers of The 5 have managed to double their money on NFLX in just over three weeks.
Today we bring you a real-time case study in a takeover target — a fertile field of opportunity being plowed by our own Louis Basenese. “We couldn’t ask for a more perfect storm for takeovers,” he said here only last week.
You haven’t heard of Netflix as a takeover target? Well, that’s a story you won’t hear from the mainstream — which is obsessing instead about the obvious stuff in NFLX’s latest quarterly numbers, and the resulting 12% pop in the share price.
Let’s dive in...
“Netflix just demonstrated to the world why it’s such a compelling takeover target for Apple Inc.,” says Louis.
Yup, Apple. Louis says everything that makes Netflix attractive to AAPL was underscored in spades by the numbers NFLX issued after the closing bell yesterday.
“The company torched expectations for subscriber growth, adding over 5 million new users,” he tells us. “It crossed the critical 100 million total subscriber mark. And now international users account for 50.1% of its business.
“Thanks to the business momentum and strong content additions, Netflix went a step further and raised guidance for the third quarter, too.
“The company now expects to add 4.40 million new subscribers in the current quarter, versus expectations for 3.99 million.”
OK, you say, but why is Netflix a takeover target and why is Apple the obvious suitor?
It comes back to something we’ve been pointing out for some time — the $256.8 billion in cash sitting on AAPL’s balance sheet. “That’s the largest cash balance on record,” Louis reminds us.
“Companies aren’t supposed to hoard cash, though, which I’m convinced sets the stage for Apple to set yet another record — the largest technology acquisition ever. After all, the reality of being the world’s biggest technology company is that growth isn’t an option. It’s a requirement.
“And the only way to keep growing at impressive double-digit rates is to make a big, BOLD move in the M&A department.”
And the only acquisition that makes sense, Louis says, is NFLX. “Apple has its sights on streaming content.”
When it comes to video streaming, AAPL is playing catch-up. Really, its online video business is still stuck in the mid-2000s — renting or selling individual titles via iTunes.
“It does not offer a subscription service to stream, which impedes its growth,” Louis explains. But by baking Netflix’s streaming video service into the 700 million-plus iPhones in use today, Apple would unlock a $68 billion profit center — almost overnight.
“More importantly, the merging of their two ‘user bases’ would create a devastating competitive advantage. (Don’t forget Netflix’s 100 million subscribers.) As a result, Apple wouldn’t just have a new space in which to operate; it would have a new space to dominate.
“Apple also happens to be the one company that needs to make the acquisition the most,” Louis goes on.
“As you can see in the chart, it’s a surefire way to supercharge profit growth, as Netflix is growing profits faster than any other tech giant.”
U.S. Tech Giants Net Income Growth Rate
All of the foregoing was the case Louis made back in June 26 to charter subscribers of The Takeover Alert. Netflix, he said, was a classic “marked stock.” Conservative investors could buy NFLX shares — which as of this morning are up 16%. For the more aggressive-minded, he recommended call options dated one year out. As of this morning, those options have doubled in price; Louis is urging readers who bought them to sell half their position and lock in that 100% gain.
“Of course, we’re convinced the upside is much higher on a takeover offer from Apple,” Louis says this morning. “And the prospects and probability of a deal only increased based on NFLX’s latest report.”
Louis has four other “marked stocks” in the Takeover Alert portfolio — with potential new deals and new recommendations coming every week.
Want in? Here’s where to go. No long video to watch, either.
The glow from Netflix is not extending to the rest of the stock market.
The Dow is adding to yesterday’s losses; at last check the Big Board was at 21,545. But with tech stocks coming on strong — Netflix isn’t the only one — the Nasdaq is slightly in the green and flirting with a record at 6,328.
