NFLX up on takeover rumors:
Netflix Rises on Speculation of Amazon.com Buyout (Correct)
By Jeff Kearns and Meg Tirrell
July 13 (Bloomberg) -- Netflix Inc. gained and bullish options trading jumped to the highest in 11 weeks on speculation that Amazon.com Inc. may acquire the largest U.S. mail-order movie service.
“There’s heavy call buying and the stock is up on renewed takeover talk, with Amazon being mentioned specifically,” said Fred Ruffy, the senior options strategist at WhatsTrading.com, a New York-based provider of options market analysis. “It’s pretty typical of speculative call buying.”
Netflix competes with Amazon.com in delivering movies over the Internet, an area Chief Executive Officer Reed Hastings said in February is instrumental to the company’s long-term success. Netflix has more than 10 million subscribers, who primarily use its DVD-by-mail service.
The Los Gatos, California-based company is an unlikely target for Amazon.com because it has distribution centers across the U.S., Wedbush Morgan Securities analyst Michael Pachter said. With such locations, Amazon.com would have to collect sales tax in those states, raising the customer’s cost, Pachter said in a telephone interview today.
“Suddenly in a whole bunch of states Amazon finds itself taxable,” said Pachter, who recommends buying Netflix shares and doesn’t rate Seattle-based Amazon.com. “It would kill their core business.”
Stopped Doing Business
Amazon.com stopped doing business with marketing affiliates in Hawaii, Rhode Island and North Carolina last month to avoid collecting sales tax. Amazon.com has said it shouldn’t have to pay taxes in states where it doesn’t have a physical presence.
Netflix spokesman Steve Swasey and Amazon.com spokeswoman Patty Smith both said their companies don’t comment on rumors or speculation.
“We’re seeing the type of options flow that we’d often see around this sort of rumor, with buyers of near-term, out-of-the- money calls,” said Christopher Jacobson, chief options strategist at Susquehanna International Group LLP in Bala Cynwyd, Pennsylvania. “Some investors are looking to position for upside in case these rumors do have some truth to them.”
Netflix advanced $2.47, or 6.2 percent, to $42.54 at 2:21 p.m. New York time in Nasdaq Stock Market composite trading, after reaching $42.60 for the biggest intraday climb since June 17. The shares rose 34 percent this year before today.
Trading of call options, which give the right to buy the shares, surged to 13,332 contracts, more than five times the four-week average and 2.5 times the volume for puts, which give the right to sell.
Most-Active Contracts
The most-active contracts were July $42.50 calls, which soared to 85 cents from 15 cents and accounted for more than half of today’s call volume. July $45 calls, the second-most active, quadrupled to 20 cents. A buyer at that price is betting that the shares will exceed about $45.20 before this month’s options expire at the end of this week.
About 60 percent of the July $42.50 calls and 56 percent of the July $45 calls changed hands at the ask price, which indicates that buyers initiated most of today’s transactions.
Amazon.com shares, up 51 percent this year before today, gained $3.63, or 4.7 percent, to $81.26 in Nasdaq trading. Earlier the stock reached $81.65 for the biggest intraday gain since June 1.
To contact the reporters on this story: Jeff Kearns in New York at jkearns3@bloomberg.net; Meg Tirrell in New York at mtirrell@bloomberg.net.
Last Updated: July 13, 2009 19:56 EDT
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