Streaming video services provider Netflix, Inc.(NASDAQ:NFLX) saw its shares spike on Friday after rumours began to spread that Microsoft Corporation(NASDAQ:MSFT ) may be interested in acquiring the company.
Of course, not everybody was buying the rumour as it sounds rather far-fetched.
The genesis of the rumour seems to lie in the recent announcement that Netflix Chief Executive Reed Hastings has decided to step down from the board of Microsoft.
The conclusion that people have jumped to is that if Microsoft was indeed going to buy Netflix, it would get rid of Hastings as it cannot have him hanging around being privy to any information about bid prices as that would tantamount to insider trading.
There could be a hundred other reasons for Hastings to quit the Microsoft board, including his busy schedule, other commitments or Microsoft's push into content with XBox may have turned up the heat on competition. XBox 360 is being used by the company more as an entertainment device than merely as a gaming console.
Netflix is facing a lot of competition from new players in the segment, most specifically Amazon. Hastings needs to devote all his time to ensure that the company maintains its leadership position in the segment.
Netflix has a market capitalisation of $3.7 billion and is currently trading at roughly half of its 52-week high. It is a dominant player in streaming video content across almost all electronic platforms. Microsoft is a cash-rich company with nearly $70 billion worth of it. An acquisition or a stake buy would sit pretty well for both companies.
Microsoft has the reputation of buying out Web brands. It did that with Hotmail, Skype ad tried it with Yahoo too.
However for the moment it seems to be merely a lazy Friday afternoon rumour.
Shares in Netflix soared over 13 percent to close at $69.58 on Friday, erasing earlier loss made on Wednesday on poor outlook. For the week, the stock rose over 7% and saw a recover of 21% from week’s low of $57.40.