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Apple has a pile of nearly $250 billion in cash and one of the ways J.P. Morgan thinks the tech giant could use it is by acquiring Netflix, to boost Apple stock and company’s position as a video content creator.
“We think Netflix is best strategic fit on leading position in engagement level as well as original content, differentiating itself from pure aggregators of content. 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.”
Chatterjee noted that the purchase would likely command a sizable premium. If that premium was 20 percent, it would likely cost Apple $189 billion, the analyst speculates. Netflix has a current market value of $148 billion and $7 billion in net debt.
The problem, however, is that Netflix won’t come cheap. Chatterjee said that Apple might be forced to pay a 20% premium to acquire Netflix, placing its purchase price at $189 billion.
Luckily for Apple that’s a bill it could pay—with cash. The company has nearly $250 billion in cash on hand and could technically write a check for Netflix. But the company has had boatloads of cash for years and has been loath to make big acquisitions. Instead, Apple has been content to buy smaller companies for feature upgrades in software.
However, with a slumping iPhone business and a Services division, which includes streaming content and apps, 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.
Netflix’s Future as the Streaming Leader is Anything But Guaranteed
An acquisition of this kind would certainly be big news. While it’s true that Apple stands to gain when it comes to its overall content creation strategy, Netflix’s future as the streaming leader is anything but guaranteed. Though the company’s releases continue to garner critical acclaim, it’s unclear how it will be able to keep the momentum as more video services enter the fray. Not to mention, Netflix recently hiked its rates, which made many consumers quite unhappy.
It’s important to emphasize that the JP Morgan note is pure speculation. Chatterjee hasn’t heard of any deals being discussed between the two companies. Still, the analyst believes this would be one way for Apple to continue to be a leader in the digital media space. Other potential acquisitions Chatterjee recommended were Activision Blizzard and Sonos.
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To that point, this is not the first time Netflix and Apple have split on key initiatives on the latter’s platforms—Netflix was omitted from inclusion in Apple’s TV app, which is one of the primary selling points of the Apple TV 4K and a cornerstone of the entertainment experience on iOS devices. Most similar services support the TV app, and the lack of Netflix is damaging to the value proposition of Apple’s platform for TV lovers.
Apple plans to launch its own TV service as soon as this year, with original programming from high-profile creators already moving forward. The service would likely compete directly with Netflix, so we don’t expect the relationship between these two companies to get any cozier in the future.
Just for reminder, we already wrote off how from the top-notch American companies whose performance is a key address of today’s stock market prognosis, Apple has mostly suffered from the U.S.-China trade stalemate. Being unwillingly engaged in the international conflict rolling out between those two counties, the company that in August has managed to reach the record high market capitalization of $1 trillion, today is cut off from the multi-billion Chinese market.
For Apple, the loss of direct access to such rapidly emerging and booming market as China was almost fatal. The more intense the trading war inflames, the less enthusiastic becomes Apple’s board of directors. Earlier this month the company has already lowered Q4 revenue projections from a previously stated range of $89 billion to $93 billion down to rough $84 billion.