"Netflix may be looking for an exit," Laura Martin, a senior analyst at Needham, told the media on Thursday, suggesting that Netflix may be making long-term preparations for a future acquisition by Microsoft.
Netflix is trying to get close to Microsoft in the hope that Microsoft will switch to Netflix after digesting its acquisition of Activision Blizzard. "
Of the other partners Netflix can choose from, no company is able to make the $100 billion acquisition, either underfunded or subject to regulatory restrictions, according to Martin.
As of the overnight close, Netflix had a market capitalization of about $80 billion.
Why did you choose inexperienced Microsoft?
Microsoft is inexperienced in third-party advertising, while Comcast, the global parent company of Google and NBC, is even more experienced, and Netflix was expected to choose between the two. However, Netflix unexpectedly chose Microsoft, which is the main reason why Martin doubts the true intention of the partnership.
Netflix claims that it chose Microsoft because it is innovative and flexible in technology and sales, and can provide strong privacy protection for users.
Microsoft acquired advertising platform Xandr from AT&T last year, and Xandr's technology is said to be a strategic complement to Microsoft's advertising products, allowing Microsoft to speed up the delivery of its digital advertising and retail media solutions.
In Martin's view, Microsoft will need to build an important technology to meet Netflix's business needs, but this will cause Netflix to delay plans to launch ad subscriptions by the end of the year.
Martin predicts that the service will not be available until the third quarter of 2023. But investors do not want to see such a result, they hope that advertising can quickly generate revenue.
Netflix's situation is not optimistic.
Analysts at Goldman Sachs said in a report released on Thursday that Netflix will continue to struggle to explore in a rapidly changing streaming environment.
Eric Sheridan, an analyst at Goldman Sachs, said it was clear from Netflix's operating data that Netflix still faces difficulties in normalizing growth after the outbreak and increasing competition in the industry.
The two analysts also questioned the timing of Netflix's deal with Microsoft, both strategically and operationally. Martin said:
"Netflix announced on an earnings call three months ago that it would launch an advertising business, but they haven't hired an advertising sales director yet."there is not a single advertising expert in this business empire, but they have chosen an advertising partner for the technology stack. The idea is retrogressive."
Netflix will report quarterly results after the close of trading next Tuesday. The company reported an unexpected drop of 200000 subscribers in the first quarter, and its shares fell more than 30 per cent at one point after the release of the report.
In addition, Sheridan expects Netflix's results to be tested in the coming quarters, given flagging consumption, increased competition and rising costs. Sheridan maintains its sell rating on Netflix shares.