NEW YORK ( TheStreet) -- Generally, these articles go to die in the comments section. As such, I was encouraged by the response I received to Monday's tamely titled article Amazon (AMZN - Get Report) vs. Netflix (NFLX - Get Report): Jeff Bezos Could Squash Reed Hastings Like a Bug.The first solid comment came from "Felix Urman." Here's the gist of it, lightly edited:
You do realize that Amazon's cash only increased because [it] issued $3 Billion in debt, right? ... with Reed Hastings having MSFT connections, I wouldn't bet against MSFT or another deep pocketed suitor to buy out/take a stake in Netflix if only to force Amazon to burn more cash as it now competes against MSFT in the cloud and tablets, google in the cloud, devices and shopping, and Apple in everything.
Put another way Amazon needs Netflix. As content purchasers, price becomes everything. As we all know pricing power vs pricing cost is a balancing act that needs many in the competitive pool to maintain the pricing balance that provides liquidity, profits and value for the consumer. Sometimes it is in your own best interest to have a weaker competitor / partner to maintain that balanced eco-system.That's why I get up at four in the morning -- to help initiate these conversations.
These comments come at the issue from different angles, yet both address notions of competition and spending. I agree with everything in comment number two, but respect both takes equally. Each adds to the conversation; it's not the same old, tired lament of AMZN's P/E. First, I do realize that Amazon took out $3 billion in debt. Mea culpa. I probably should have mentioned it in my article; however, in all seriousness, I don't consider it relevant to the story. Prior to the offering Amazon had no meaningful long-term debt to speak of. In fact, relative to its cash pile and revenue, it still doesn't. This is a classic case of a company poised to grow exponentially, taking advantage of a low-interest rate environment. Given that Amazon had about $5 billion in cash on the books going into the transaction, I'm not sure how you could construe it any other way.
As I explained in the Bezos bug-squashing article and Netflix Probably Should Be Bankrupt, Stock Closer to Zero, even though Reed Hastings tells you it's the same situation at Netflix, it's not. Just look at Netflix's financials. They're an absolute mess, in isolation and relative to Amazon. Netflix is mired in a vicious cycle of spending with no end sight. It can't just turn off the tap on buying third-party content and creating original programming. Amazon, however, can throttle back as this current hyper-phase of growth moderates. But, just remember, it's not going to happen overnight. Also, remember, I know the score. Love Netflix the service. In fact, I would, without second thought, pay $20 a month for it. Sort of, kind of love the stock . . . enough to have predicted its rise from the dead and subsequent move past $100. But I just cannot buy the business model, which is why, at day's end, it's impossible for me to buy what Reed Hastings is selling on this debt deal as well as his company's future.