I honestly never imagined I’d be writing an article, in earnest, about why it might make sense for Apple Inc. (AAPL) to buy Netflix, Inc. (NFLX). In short, AAPL stock needs a catalyst, and company executives know it.
Apple never seemed to me like the type of company that would mull something like, say, buying all the outstanding shares of NFLX stock. But after today’s news, it doesn’t seem so far-fetched.
The Financial Times reported that Apple’s Eddie Cue, head of the iCloud, iTunes and Apple Music divisions, held talks with Time Warner Inc (TWX) about buying the company, which is behind HBO, CNN and Warner Bros.
Here’s why AAPL stock owners should start to embrace the idea of a large acquisition — and why NFLX stock owners just might be the beneficiary.
AAPL Stock: Put That Cash to Work!
If ever there was a time for Apple to buy NFLX, the time is now. Well, if you want to be picky, buying Netflix a few years ago probably would’ve been smarter (and certainly cheaper!), but you know what they say: There’s no time like the present.
As AAPL stock owners know, things are changing quickly for Apple, which saw iPhone sales fall for the first time ever last quarter and saw revenue decline company-wide for the first time since 2003.
iPhone revenues still account for about two-thirds of all Apple sales, which is a problem when people are buying less iPhones. In the fiscal second quarter, iPhone revenue came in at $32.9 billion, $7.4 billion less than the $40.3 billion in revenue its smartphones generated just a year before.
AAPL desperately needs something to fill that void. This, NFLX stock owners, is where you start licking your lips.
Today’s FT story mentioned that bankers thought Netflix, or another streaming company, would be a better buy for Apple, since it leaves the flexibility to partner with a diverse mix of content creators.
Even with $216 billion in cash to play around with, AAPL stock can only rely on share buybacks and dividend payments for so much. Sales cure all, and Apple needs to find something to fill its revenue shortfall.
NFLX stock jumped as much as 3.7% today on the prospect of an Apple buyout; the streaming company is expected to bring in $8.7 billion this year and nearly $11 billion next year, so it would certainly help out.
Media seems to be the area that Apple is focused on buttressing, as it aims to launch its own streaming video service at some point. AAPL also wants to produce more content of its own, and has several projects in the works now, including one starring Dr. Dre that will be available for Apple Music.
In any case, NFLX stock could potentially be in play. Sure, the company’s $45 billion market cap is a bit of a steep price tag — Mark Cuban bought $17.8 million worth of NFLX stock at a valuation of $21 billion in Oct. 2014, tweeting that he thought the company would be bought out. That means Apple would be buying in at more than twice what Cuban paid less than 20 months ago.
But there’s no other company like it on the face of the earth — and there’s no guarantee NFLX won’t double again. Whether Netflix is the buy or it isn’t the buy, AAPL stock owners can now assume a big purchase of some sort is coming soon to a portfolio near you.
As of this writing John Divine had no position in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
