Microsoft’s ( MSFT.O ) chief executive appears to be shopping for new businesses. Netflix may be one of the new options that will be available in 2023 Microsoft shopping list will be added.
Nadella has made a string of expensive acquisitions since taking over Microsoft in 2014. His action started with the $2.5 billion purchase of the successful Minecraft game maker. After that, Microsoft bought LinkedIn for $26 billion and speech recognition and artificial intelligence software developer Nuance for $20 billion. His biggest recent purchase is Activision Blizzard with a $69 billion deal.
Microsoft is negotiating with US regulators and antitrust agencies to buy the rights to the creator of Call of Duty. The aforementioned institutions are investigating the concerns related to the dominance of the mentioned company in the market. However, even if Nadella can’t acquire Activision Blizzard for competitive reasons, buying Netflix’s platform would make strategic sense and would likely be an easier sell in Washington and Brussels.
These two companies currently have close relations. Netflix has chosen Microsoft as its advertising partner for its new subscription service. Microsoft CEO Brad Smith is also on Netflix’s board. Part of the logic of this deal is that Microsoft plans to provide its users with a video game streaming service on different devices.
It looks like Netflix has big plans for gaming. In 2022, the company, led by Spray Fox developer Reed Hastings, acquired its sixth in-house studio. Becoming a part of the Microsoft empire increases the company’s ambitions.
With a market value of $1.8 trillion by early December, which is 13 times that of Netflix, Microsoft can buy this American content production platform. A 30% premium would value Netflix at nearly $190 billion. Cost savings are difficult to come by, however, and after taxes the $8 billion in operating profit that analysts forecast for Netflix in 2024, the implied return on investment would be just half of its weighted average cost of capital of 8 percent.
Nadella used to avoid the logic of buying other companies one after the other. At the same time, he has shown a penchant for bold purchases. Therefore, it is safe to say that Microsoft will aim to buy Netflix.
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