Netflix shares jump on Verizon acquisition rumor

Streaming video company's shares up, but are buyers being played?

Shares of Netflix (NASDAQ: NFLX) soared more than 8% Monday on a report that wireless giant Verizon (NYSE: VZ) is mulling an acquisition of the embattled streaming video player.

Netflix stock peaked at 76.83 earlier in the day before closing at 75.26, a gain of 6.2% over Friday's finishing price of 70.89.

Through Monday's trading, Netflix shares have gained 20.7% since hitting a 52-week low of 62.37 on Nov. 30. But let's not get too excited; Netflix is down 75% since mid-July, when it announced a disastrously received price hike that triggered a subscriber exodus and subsequent earnings warnings.

Back to the Verizon rumor: According to the subscription investor website dealReporter, Verizon is hot to get into the video streaming business and sees Netflix as a viable entry vehicle.

On the surface, the rumor makes sense for three reasons: 1) Verizon doesn't want to be consigned to the "dump pipe" ghetto when there's so much money to be made in the content and services business, and 2) For all its recent travails -- including the loss of 800,000 subscribers in the third quarter and more attrition expected in Q4 -- Netflix has more than 23 million subscribers and is profitable, and 3) Netflix, with a current market cap of just under $4 billion, is much more affordable to Verizon (which is worth $108.5 billion) than it was at its highwater mark in July, when it was overvalued at $16 billion.

Throw in Verizon CEO Lowell McAdam's recent comments that his company had considered purchasing Hulu, and the Netflix scuttlebutt seems plausible.

But a rumor is a rumor is a rumor, and it's always amazed me that so many investors will pull the trigger based on something they read from an anonymous source who just may have a vested interest in floating trial balloons for fun and profit.

How do we know the source for the dealReporter story isn't a large institutional investor in Netflix that's trying to reverse the stock's freefall? The financial and tech media are constantly played by sources with vested interests hiding behind anonymity. Indeed, I'd argue that stock bubbles are fueled in large part by this kind of self-interested and manipulative speculation (I'm looking at you, Facebook).

So good luck to you new Netflix shareholders. I have a feeling you're going to need it.

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