• Brett Schafer

Who Should Apple Acquire?

Apple has more value in liquid assets than any other company in the world, and it’s time for that cash to go to work. The goal of this article is to see what acquisition would be the most profitable for the tech giant, in hopes of turning the top line revenue back around. With more than $200 billion in cash, Apple could acquire any of the following companies and here’s why they should.

Square: Jack Dorsey’s $31 billion digital payments company would be a great acquisition for Apple. Square came on to the scene in 2009, and has since become a silicon valley darling. Square’s stock price has soared since it’s IPO 4 years ago. Shares are up 576%, and credit is due to the executive team at Square. Last quarters earnings report announced 51% year over year revenue growth, and their first ever profitable quarter.

square terminal

Square has completely disrupted digital transactions, and has assisted the growth of many small businesses. They plan to replace all credit card readers with their new Square Terminal, and are already a leader in the peer to peer payments space with their Cash App. The company is sleek and looks like it won’t be slowing down any time soon. Apple operates in the peer to peer space already through Apple Pay, and even though it would have to be a generous offer, Square could likely add major value to their services side that they’ve worked so hard to promote.

Netflix: I don’t think this would ever happen, but if it did it would be the biggest financial news of this decade. Netflix is already a $150 billion tech giant and has perfected the subscription business model. Netflix has more than 139 million paying subscribers across the globe and they haven’t even began to flex their pricing power. With only $15 billion in annual revenue and $1.2 billion in net income, Netflix trades at a price to sales around 10 and a price to earnings of roughly 130.

Netflix trades at an extremely high price because investors realize that Netflix has reinvented the way business can be done. The subscription business model that Netflix has created focuses on attracting subscribers first, and then raising prices. Apple has been trying to create more revenue growth through its services sector, and I can’t think of a more valuable service right now.

Netflix logo

How the purchase would be financed is a difficult question to answer. As of right now, Apple barely has the money for the purchase since they would have to buy them at a hefty premium. As a hypothetical, a 25% premium means they would be spending almost $200 billion for the acquisition. Netflix has acquired a lot of debt and if they begin to run into trouble then maybe Apple can take a stab at it, but it seems unlikely.

Roku: Now this is likely one of the most practical acquisitions that could occur, since Apple competes with Roku directly through the Apple TV. Roku is roughly a $5 billion company and is one of the leaders in the smart TV and digital streaming space. According to Roku’s earnings report approximately 25% of Smart TV’s that are sold are Roku products. Roku has 23.8 million total active accounts, which is up 43% from a year ago.

Roku has been on the brink of profitability for about a year now, since they are reinvesting most of their earnings back into the business through research and development. They continue to see strong growth in pretty much all aspects of their business. So, the question isn’t if Apple wants to buy Roku, but would Roku want to be bought?

roku ecosystem

From an investors standpoint I would like to see Roku perform on their own. Roku already has one of the cheapest smart TV’s available and they’ve really started to build out their entire ecosystem. Apple will have a tough time beating out Roku, and an attempt to make an offer seems like the best move for Apple right now.

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Spotify: The audio steaming giant would be a sensible acquisition since it competes with Apple in both music and podcasts. Spotify is a Swedish audio streaming company that was created in 2006, and IPO’d less than a year ago. Spotify makes money through their premium subscriptions and advertisements on their fremium model. Spotify has 207 million monthly active users (MAU’s) and 96 million premium subscribers. On top of their leadership in the music streaming space, they have made it quite clear that they intend to grow their presence in the podcasting space as well.

spotify logo

Podcasting is one of the fastest growing areas of business, with total revenue increasing more than 70% each of the past 3 years. Spotify spent $340 million to acquire podcasting networks Gimlet Media and Anchor. Apple directly competes with Spotify in both the music and podcasting spaces through Apple Music and Apple Podcasts. Only about 30% of Spotify’s MAU’s and subscribers are located in North America. Spotify has a much greater presence internationally than Apple in audio streaming.

Spotify is a $26 billion company with annual revenues of more than $5 billion. If Apple hopes to continue to build on the 19% year over year revenue growth in the services sector that they saw last quarter, it would be worthwhile to look into an acquisition of audio streaming giant.

Robinhood: Another silicon valley unicorn. Robinhood is a young, private company that allows users to buy and sell stocks without paying any commission on trades. While that is their core business, they’ve also announced that they will be moving into banking as well by offering a checking and savings accounts for their users that offers a 3% interest rate. If all goes according to Robinhood’s plan, they will be the one stop shop for all things finance for their customer base.

Robinhood

Now most people probably gloss right over it, but Apple actually has a stocks app downloaded automatically onto all IOS devices. And it’s horrible. There have been reports that Robinhood is set to receive funding at a $5.6 billion valuation.  If Apple was able to acquire the young company, and make their service exclusive to Apple products only they would dramatically enhance their services sector and likely increase iPhone sales.

Order of Acquisitions that I would most like to see:

  1. Spotify

  2. Roku

  3. Square

  4. Netflix

  5. Robinhood

Disclosure: The author is not a financial adviser, and may have interest in the companies talked about.

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