Apple Inc. ’s acquisition history is hidden to none. The tech giant – known to acquire small private firms – has been rumored to be showing interest acquiring both Twitter and Netflix. As per Bill Maurer of Seeking Alpha, an acquisition of Twitter and Netflix would seem out of character even if the management in recent quarters has appeared more open to bigger deals.
Buying own shares – a better idea for Apple?
Netflix closed with a market cap of almost $45bn this Friday while Twitter closed with a market cap of roughly $14bn. Though Apple has the most financial flexibility to make the acquisition of both companies, it shouldn’t do it.
Apple Inc. has less than $20bn of money inside the US, so deals of this size would either require a large tax bill and repatriation or another huge debt offering. Currently, the iPhone maker is using cash flow and debt at the moment to purchase a company at a much lower valuation each quarter – and its none other than itself. In contrast to buying Twitter for 70 times non-GAAP earnings (the social network has GAAP losses) or Netflix for perhaps 150 times earnings, the smartphone maker can buy its own shares for less than 13 times expected earnings, notes Maurer.
Netflix-Apple partnership – better
Netflix’s small earning would hardly push Apple’s bottom line. Twitter is projected for only $310m in revenue growth next year, which is basically “a rounding error for Apple basically,” notes Maurer. Partnerships would probably be a better idea, something like the Apple-Netflix partnership suggested by Bernstein’s Tony Sacconaghi.
In the partnership, streaming giant gets the advantage of growing its subscriber lists from Apple’s high-value customer base while the smartphone maker gets the advantages of Netflix service without the upfront risk. If the tech giant is interested in buying content, then it can easily do that for a fraction of the price, notes Maurer.
Why not Twitter and Netflix?
Apple Music would perhaps have even more annual revenues in a year or two, than Twitter, if the service is expanded in more countries and its growth trajectory continues. Partnerships with Cable TV or network companies would cost even less, if Apple wants to release a TV series.
In addition, the tech giant can make even more money by making more targeted acquisitions like Fitbit or GoPro. This would enable the iPhone maker to get a larger presence in the camera technology, wearables, and drones. At a fraction of a cost, GoPro and Fitbit could provide just as much revenues in the next year or two as Twitter would, notes Maurer.
Overall, “Netflix and Twitter don’t fit in the technology giant’s long running acquisition strategy, and Apple Inc. can buy its own shares back at a significantly lower valuation,” says Maurer. If it wants to increase its revenue, it has many options at much lower valuations than Twitter and Netflix. And, if its aim is to add content, it can do so without spending billions on acquisition.