Here’s Why Yahoo! Inc. (YHOO) Is Netflix, Inc. (NFLX)’s Unlikely Suitor

If Yahoo! was to show interest in a company such as Netflix, the question would be whether or not Yahoo! could afford or if it could pay a premium for Netflix. Yahoo! is a $28 billion company with just $3 billion in cash and short-term investments. The company has no debt, and after a one-year 63% return, its stock is also valuable. Therefore, if Yahoo! were to ever make a bid for a company such as Netflix it would have to be aggressive in the debt markets, offer shares, unload its cash, use its $6 billion in retained earnings, and even then it might still need a partner.

Conclusion

Here’s the thing: Yahoo! is a second-place company, but after seeing recent changes to the site’s layout and to other services, I think it’s reasonable to suggest that CEO Marissa Mayer has first-place aspirations. An acquisition such as Netflix could definitely give the company a boost, open new advertising outlets, expand its online video business, and give Yahoo! a mobile presence.

The bottom line: Yahoo might not acquire Netflix, but it still needs to attack each of these three key problems in which Netflix provides a solution. My suggestion is to stay tuned, don’t be surprised if it occurs, and know that with the streaming business becoming so competitive, that one of the large tech giants will snatch Netflix at some point in the near future.

The article An Unlikely Suitor for Netflix originally appeared on Fool.com and is written by Brian Nichols.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.