Apple investors are likely looking for the company to use its massive cash pile to make acquisitions, and names like Netflix, Activision Blizzard, and Sonos are among the companies that JPMorgan sees as strong strategic fits.
Shares of Apple have lost nearly 30% from an October record, dropping on concerns over the demand prospects for its key iPhone product line. In its most recent quarterly report, the company posted its first holiday-quarter sales decline since 2001, a drop that was almost entirely due to lower smartphone sales.
Given this environment, and given that Apple has roughly US$130-billion in net cash — along with an average of $45-billion in cash flow generated every year after dividends — investors are likely hoping that Apple “uses its balance sheet strength to insulate the business against often-seen disruptions in the technology landscape”, analyst Samik Chatterjee wrote.
In a note to investors on Monday, Chatterjee said that “Netflix is [the] best strategic fit” for Apple to acquire, according to CNBC, which obtained a copy of the note. The analyst added that Apple should acquire a company in the entertainment market and buying a company smaller than Netflix to try and compete against the streaming market leader would be a bad idea.
“We think Netflix is [the] best strategic fit on leading position in engagement level as well as original content, differentiating itself from pure aggregators of content,” J.P. Morgan analyst Samik Chatterjee said on Monday. “We believe there is value to acquiring the most successful player in this space, which is hard to replicate with a smaller player in this market.”
One deterrent is that buying Netflix would cost Apple an insane amount of money — JP Morgan estimates it would probably take around $189 billion USD. While Apple does have more than enough cash in its coffers, such a purchase would certainly make a significant dent on the balance sheet.
However, with a slumping iPhone business and a Services division soaring, some industry watchers have questioned whether Apple should invest even more heavily in content. Buying Netflix would see it do just that.
In addition to acquiring Netflix, Chatterjee told investors that he believes gaming company Activision Blizzard or home speaker company Sonos could also be good buys for Apple. Both of those companies would likely sell for considerably less than Netflix.