Looking at Apple (NASDAQ: AAPL) and Apple stock from an optimistic perspective, I think that Tim Cook and his C-suite colleagues finally realize that AAPL has a big problem: its main business (iPhones) is going downhill. And, as everyone knows, realizing that you have a problem is the necessary first step to finding a solution.
Apple now (unlike before this year) seems to be willing to take major, concrete steps to remedy the problem that don’t involve financial engineering (like raising the dividend of Apple stock and increasing share buybacks), gimmicks (such as making iPhones’ batteries run out sooner or raising the prices of iPhones) or pie-in-the-sky dreams that most likely never going to materialize (as I’ve said before, how can a company whose mobile maps were a failure hope to release a successful self-driving car?).
Still, I don’t think that the two major initiatives that AAPL is rumored to be working on — a credit card in partnership with Goldman Sachs (NYSE:GS) and a go-it-alone internet-content initiative — are going to move the needle for Apple’s financial results or AAPL stock. The amount of competition in both areas is huge.
There are many dozens of credit cards out there, and the number of serious players in internet video is starting to get quite large as well. I don’t see how AAPL, without outside help, could differentiate its credit card or its internet content to an extent that would convince dozens of millions of people to buy them. And to move the needle for Apple stock, any new product must attract dozens of millions of buyers.
But there are steps Apple could take that would move the needle for Apple and AAPL stock. All four of the ideas I have should enable the company to reach huge, new markets and increase its top and bottom lines by meaningful amounts, thereby boosting Apple stock.
Some analysts have urged Cook to buy Netflix (NASDAQ:NFLX). But that’s never, ever going to happen. Expecting Cook — who clearly doesn’t believe in spending much money on acquisitions, let alone buying a company that’s hemorrhaging billions of dollars a year — to acquire NFLX is like trying to persuade a 60-year-old multimillionaire who’s driven used Hondas all his life to spend $100,000 on a vehicle made by Tesla (NASDAQ:TSLA). Good luck!
But Roku (NASDAQ:ROKU) is a different story. With Roku stock trading at a market cap of $7 billion, it could probably be acquired for $10 billion. That’s very expensive compared with the deals that Cook has made, but at least its price is not in the stratosphere like NFLX would be. Moreover, unlike NFLX, Roku isn’t burning billions of dollars of cash per year. Plus, buying Roku wouldn’t force Apple to lower the dividends and buybacks that keep Warren Buffett and Cook’s other big shareholders happy.
But like Netflix, Roku would give Apple a great platform for advertising the video content that it buys, its Services, and even its iPhones. After all, Roku already advertises other internet video outlets, so ads for Apple’s TV content wouldn’t be out of place. And Roku already shows ads on its free movies, so some Apple ads would fit right in. Finally, AAPL could even bundle Apple TV and other Apple hardware in with Roku’s popular devices, enticing many Android people to take a dip into the Apple ecosystem for the first time.
An affordable price tag, tons of free advertising, a big edge in the internet video market, exposure to dozens of millions of new consumers! What’s not to like, Tim?
Partner With Netflix
This would be a lot trickier than buying Roku, especially because Apple and Netflix will likely soon be competitors in the internet video market. Still, I can’t help but think that, at this point, these two FAANG constituents are really made for each other. Apple has tons of money, but it needs to find a way to sell more products, and Netflix’s sales are growing by leaps and bounds, but it needs to find a way to bring in more money. Besides, both companies could definitely use each other’s help in fending off their current competitors that are growing more threatening by the day.
Perhaps AAPL could pay Netflix to advertise its internet content. That’s not as crazy an idea as some might think, since Amazon and Roku already advertise other internet video services on their platforms. Moreover, we’ve probably reached the point where many people will have more than one internet video service.
Netflix could allow its members to try Apple’s Services at a discount, and Apple could pay for the Netflix subscriptions of new iPhone buyers for a year or two. Maybe AAPL could give NFLX a small cut of the revenue it gets from any new iPhone buyer that NFLX plays a role in referring to Apple.
Of course, these deals with Netflix would give Apple increased access to hundreds of millions of new potential customers around the world.
Fitbit (NYSE: FIT) is even more affordable than Roku. Given Fitbit’s current market cap of just $960 million (excluding cash), Apple may be able to buy FIT for just $3 billion. On the other hand, Fitbit’s founder/CEO may demand a higher price, and Alphabet (NASDAQ:GOOG,GOOGL) could make a counter bid, so the price tag could rise to as much as around $7 billion. But that’s still pretty affordable for AAPL.
In exchange for that money, AAPL would get a truly dominant share of the rapidly growing wearables market. Moreover, Cook would get increased access to a new, lucrative market that’s just starting to be penetrated: health insurers and employers who want to incentivize customers and workers to exercise more in order to lower their costs.
AAPL could potentially cross-sell its enterprise products to the insurers and companies that utilize Fitbits. (Many employers and insurers will probably want to use Fitbits instead of Apple Watches because Fitbits are cheaper and, unlike Apple Watches, work with every type of mobile phone.). Additionally, AAPL would acquire Fitbit’s advanced, extensive R&D in important areas like blood oxygen measurement and sleep apnea detection. Plus, AAPL would be able to cross-sell its hardware and services to all the Fitbit users around the world who haven’t entered Apple’s ecosystem yet.
BlackBerry (NYSE:BB), which is worth about $3 billion excluding its cash, could probably be acquired for around $9 billion or $10 billion. The acquisition would enable AAPL to cross-sell its enterprise solutions to BlackBerry’s hundreds of current business and government customers. After making the deal, Apple would control BlackBerry’s QNX operating system, which looks set to be installed in millions of driverless cars. As a result, in the wake of the deal, AAPL could develop and easily sell many new software systems for driverless cars.
Meanwhile, as cybersecurity threats to businesses and governments multiply and intensify, BlackBerry, which has superb cybersecurity credentials, should be boosted by many new, valuable software deals. Furthermore, the proliferation of tens of millions of new, connected devices should greatly increase the demand for BlackBerry’s highly secure software and operating systems.
Last but not least, AAPL could incorporate BlackBerry’s security software into iPhones, enabling Apple to accurately brag that iPhones are more secure than competing devices and giving it an important edge over the competition.
As of this writing, Larry Ramer owned shares of BlackBerry and Fitbit.