Satya Nadella keeps thinking bigger. The CEO of Microsoft (MSFT.O) has been buying new businesses at a very fast rate. In 2023, he is likely to add Netflix (NFLX.O) to the list.
Since he was given the corner office at the tech giant in 2014, Nadella has gone on a pricey shopping spree. It all started when the company that made the hit game Minecraft was bought for $2.5 billion. Later, Microsoft paid $26 billion for LinkedIn and $20 billion for Nuance, a company that makes speech recognition and AI software. At $69 billion, Activision Blizzard (ATVI.O) was by far the most valuable target that was made public.
Related: Nasdaq futures were helped by Netflix’s increase in subscribers.
Microsoft is busy fighting against U.S. antitrust groups for the right to buy the company that made “Call of Duty.” Putting it under the same roof as the Xbox game console has raised concerns from the government about market dominancetting it under the same roof as the Xbox game console has raised concerns from the government about market dominance. Even if Nadella doesn’t get the video game company because of competition, it would still make strategic sense for him to own Netflix, and it would probably be easier to sell to Washington and Brussels.
The two businesses already work well together. Netflix picked Microsoft as its advertising partner for a new subscription service that will be paid for by ads. Brad Smith is the president of Microsoft. He is also on the board of Netflix. One reason for a deal is that Microsoft wants to offer a streaming service for video games on more than one device.
Netflix has big plans for games of its own. The company co-led by Reed Hastings bought Spry Fox, a game developer, in 2022. This was the sixth studio that the company owned. Being a part of the Microsoft empire would make these goals even bigger. It’s not hard to imagine a package that includes both streaming TV and games.
As of early December, Microsoft’s market value was 13 times that of Netflix, which means it could pay for Netflix. With a 30% premium, the value of the Netflix business would be close to $190 billion. But it would be hard to find big ways to save money. After taxes on the $8 billion in operating profit that analysts think Netflix will make in 2024, the implied return on investment would only be half of its 8% weighted average cost of capital, according to Morningstar analysts.
Nadella has gone against this kind of back-of-the-envelope math before. And if nothing else, he has shown that he is willing to take risks when making deals. Based on this, it’s easy to think that Microsoft will aim for Netflix.
Related: Netflix Ad-supported Plan to Launch in November, starting at $7 per month
CONTEXT NEWS
The US Federal Trade Commission filed a lawsuit on December 8 to stop Microsoft from buying video game developer Activision Blizzard for $69 billion. The commission said that the deal would hurt consumers because it would give Microsoft an unfair advantage over its competitors in the Xbox and cloud-gaming markets.
