Apple Inc. (NASDAQ:AAPL) stock improved 10% in 2016, despite posting its first revenue decline since 2001. Last week, it emerged that Apple would cut iPhone 7 production 10% amid weakening sales. Colin Gillis of BGC Research noted that supply chain info should be taken “with a grain of salt,” but nonetheless Apple is approaching a period of seasonal weakness.
Apple increased its services revenue 24% to $6.3 billion a quarter last year. As hardware sales weaken, Apple will need to accelerate its transition to software and services, which don’t fluctuate as much. Apple could effect this by buying Sirius XM Holdings Inc. (NASDAQ:SIRI), which itself may buy Pandora Media Inc (NYSE:P).
Barron’s already suggested this. By buying Sirius and Pandora, Apple would increase its revenue from services, boost its position in connected car services and strengthen Apple Music against Spotify.
Apple, however, tends to avoid big purchases. People like to speculate about Apple buying everything from Netflix, Inc. (NASDAQ:NFLX) to Tesla Motors Inc (NASDAQ:TSLA), but Apple has shied away. Apple’s $3 billion purchase of Beats in 2014 was its biggest acquisition so far. Sirius holds a market cap of $21 billion, and may buy Pandora for $20 a share, or $4.5 billion.
And other things could get in the way of a deal.
Buying Sirius/Pandora Will Help Apple Increase Services Revenue and Growth
Services already makes up a substantial chunk of Apple’s revenue, at 13%. This is larger than Mac and iPad sales. But iPhone sales still account for 61% of Apple’s top line.
Increasing Apple’s revenue from services would reduce risk, since services revenue doesn’t swing as much as iPhone sales. Sirius sold $1.3 billion in the third quarter of 2016, with most of that revenue derived from services. Pandora’s revenue in that quarter amounted to $351.9 million.
This would represent a 25% increase in Apple’s revenue from services, increasing Apple’s growth and potentially boosting AAPL’s stock price.