Will Apple Buy Netflix, Facebook?

Other Apple buyout targets could be Sony, Adobe, Electronic Arts

Microsoft (NASDAQ: MSFT) may not be acquiring software developer Adobe (NASDAQ: ADBE) after all. The New York Times reported earlier this month that Microsoft CEO Steve Ballmer met with Adobe boss Shantanu Narayen to discuss a potential acquisition as a way to strengthen both companies against the growing power and influence of Apple (NASDAQ: AAPL) on the software, computer technology, and mobile markets. Now, according to a new report from The New York Times, Apple strategy may be to itself acquire its long-time software rival Adobe Systems.

During last week’s conference call detailing Apple’s third-quarter earnings, CEO Steve Jobs openly admitted that Apple was pooling its cash resources in anticipation of “strategic opportunities,” indicating to those analysts listening in that Apple would be making at least one high-profile corporate acquisition in the near future. Edward Jones analyst Bill Kreher, speaking to Times blog DealBook, said that if Apple is going to significantly change the face of its business, a new acquisition would have to be markedly bigger than previous purchases like chip maker Intrinsity, which the company acquired last April for a reported $121 million.  “For (Apple) to really move the needle with an acquisition, they are going to need to move up the scale, so to speak.” With $51 billion in cash, Apple certainly has the means to move up the proverbial scale mentioned by Kreher. Adobe (which financial weekly Barron’s indicates is a likely purchase) is just one of a number of a significant options, according to analysts. Apple may also be looking to buy its way to the top of the video entertainment and video game industries. It may even buy Facebook.

Kaufman Bros analyst Shaw Wu believes that, given Apple’s increasing interest in both video and gaming, Netflix (NASDAQ: NFLX) and Electronic Arts (NASDAQ: ERTS) are likely targets of a multi-billion acquisition by Apple. Netflix would give Apple the same penetration with video onto competing platforms like Google (NASDAQ: GOOG) Android smartphones, set top boxes like Logitech’s (NASDAQ: LOGI) Google TV boxes, and gaming consoles like Nintendo’s (OP: NTDOY) Wii much in the way it has with the iTunes software and store. It would also make Apple an automatic leader in the streaming, on-demand video market that is gaining on broadcast and cable service. The power that Netflix would give Apple, however, would only increase television partner unease with the company’s growing influence. Apple’s new 99-cent TV show rentals through iTunes received only limited support from content providers; News Corp. (NYSE: NWS) and Disney (NYSE: DIS) offer their Fox and ABC programming through Apple’s service, but Time Warner (NYSE: TWX), CBS (NYSE: CBS) and GE’s (NYSE: GE) NBC Universal have all expressed concern over how their profits would be affected by such low costs. That coupled with the streaming access provided by Netflix would do little to ease that worry.

Electronic Arts, meanwhile, would be desirable not just for its major gaming franchises like The Sims and Madden NFL, but its prominent social and mobile gaming divisions as well. EA’s products perform well on Apple’s mobile devices, and an acquisition would again give Apple new reach onto competing hardware platforms. Barron’s also suggested that Sony is another possible acquisition for Apple, which would give it not just control of one of the three major video game hardware manufacturers in the world, but direct control over a competitor in numerous branches of Apple’s business, including laptop computers, smartphones, music distribution and more. (See a full analysis of the Apple-Sony buyout rumors here.)

Kaufman’s Wu also sees Facebook as a possibility, one that may ultimately prove the most profitable for Apple. “(As) crazy as it sounds, it would be a game-changer,” Wu told the The New York Times. Apple’s interest in the social network has been demonstrated by the prolonged and reportedly tense integration of Mark Zuckerberg’s infamous social network with Apple’s new iTunes-based network, Ping. Zuckerberg and Jobs also recently met for dinner at Jobs’ house according to the Los Angeles Times, though what they discussed is still unknown.

With cash to spare and two of the most successful consumer electronic devices, the iPhone and iPad, in the world, Apple can afford to be patient in plotting its next great expansion. Shareholders in all of these companies would do well to pay attention at the end of Apple’s fourth quarter in early 2011.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

Article printed from InvestorPlace Media, https://investorplace.com/2010/10/will-apple-strategybuy-netflix-facebook/.

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