As Netflix stock declines, rumors of a Google or Amazon takeover fly

With unpopular decisions to raise its prices and rebrand its DVD-by-mail service, Netflix Inc. has made headlines recently for all the wrong reasons.

Now, amid its biggest slump in seven years and a stock price down 57 percent from its once record value, the little red envelope appears to have a big red bullseye on its back.

Rumors are starting to build that companies such as Google and Amazon, two Internet giants who have yet to make a splash in the online movie rental market, could be circling the Netflix wagon in an attempt to buy out the most successful DVD rental company in the United States.

With such a steep stock price decline, it’s easy to why.

Netflix, which had 24.6 million U.S. customers at the end of June, had surged more than 1,000 percent in the past five years to a record $289.73 per share on July 13, according to Bloomberg News.  As of last week, that stock price was down to $129.36 per share, a loss of almost $9 billion in market value since July.

It’s not like Netflix has done itself any favors along the way, either.  After announcing an unpopular 60 percent price increase for both its online and DVD services in late July, it’s estimated that Netflix may have lost upwards of a half-million U.S. subscribers over the past two months.

Further adding to the recent tailspin was the announcement two weeks ago that Netflix Chief Executive Officer Reed Hastings was separating from the company and renaming the DVD delivery business to Qwikster, a move that caused the Netflix stock to take a 38 percent tumble.

However, despite its recent decline, Netflix still earned more per dollar invested that 99 percent of the biggest American companies on the market in the past year and has more paying customers for movies and TV shows than Amazon, Google and Sony, making it a very attractive asset and a prime target for takeover.

Amazon currently offers online movie rentals free to customers who buy its $79-a-year Amazon Prime shipping service and Google, owner of the YouTube website, offers a YouTube movie rental service in addition to a Google TV service that allows consumers to watch movies from the internet through their TV.

With neither company achieving even close to the success that Netflix has had in the online movie rental market, buying the already established online entertainment leader rather than continuing to build their own services might be the most viable option.

According to Bloomberg Businessweek, Netflix, Google, and Amazon all declined to comment on the buyout rumors, although it was confirmed by the news website that both Google and Amazon made an offer for Netflix online streaming video rival Hulu at the beginning of September, perhaps giving an indication that both companies are interested in buying up a share of the online movie and television market.

Whether either of those companies will make an offer for Netflix, or perhaps waits until the stock price drops even lower as there has been no indication that it will not continue to decline, remains to be seen.  Either way, a big change for the little red envelope could be coming soon.

photo courtesy of Mr. Thomas via flickr