NEW YORK (TheStreet) -- Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report stock is down by 4.53% to $103.99 in late afternoon trading on Friday, as Time Warner Inc. (TWX) considers taking a stake in rival streaming service Hulu, sources told the Wall Street Journal.
The deal would likely allow Hulu to better compete with rivals such as Netflix and Amazon (AMZN) by helping Hulu diversify its content offerings, the Journal reported. Time Warner would not only invest cash in Hulu, but also license additional content to the service.
The potential stake is part of a "long-term strategy" for Hulu, according to the Journal.
Based on estimated subscriber growth to 16 million from 10 million, Hulu's value will increase to between $7 billion and $8 billion by the end of 2016, up from its current range between $5 billion and $6 billion, according to JPMorgan, the Journal added.
Media giants WaltDisney (DIS), Comcast (CMCSA) and 21st Century Fox (FOXA) currently have a one-third stake each in the company, and would reduce their stakes to make Time Warner an equal shareholder, the Journal noted. The three current stakeholders have allowed Hulu the rights to stream their shows shortly after they air on TV.
Separately, TheStreet Ratings team rates NETFLIX INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate NETFLIX INC (NFLX) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, robust revenue growth and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, NFLX's share price has jumped by 108.87%, exceeding the performance of the broader market during that same time frame. Although NFLX had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- NFLX's revenue growth trails the industry average of 45.5%. Since the same quarter one year prior, revenues rose by 23.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Internet & Catalog Retail industry and the overall market, NETFLIX INC's return on equity is below that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$195.97 million or 423.43% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: NFLX
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.