Speculations that Netflix will become an acquisition target for Apple are back and have gained ground, especially after Apple CEO Tim Cook indicated that the company is always looking for opportunities to acquire companies and exciting new technologies.
Netflix a good fit for Apple
Apple’s iPhone sales have been down lately, as was revealed in the company’s earnings release and conference call this week. During the call, Cook said he is willing to spend a huge amount on a blockbuster acquisition if the right opportunity comes its way.
Cook said, “We’re always looking in the market about things that could complement things that we do today, become features in something we do, or allow us to accelerate entry into a category that we’re excited about.”
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
He also hinted that Apple is planning to make an acquisition that will be larger than all its acquisitions to date. So far Apple’s largest acquisition was Beats for $3 billion. Since then, Apple has openly declared its intentions of making a big acquisition, and pundits have already started guessing potential targets. Netflix is a name that seems to be coming up again and again.
Having Netflix under its umbrella would be really beneficial for Apple from a business standpoint. It would offer Apple an incredible way to get into the TV business and be a nice fit with its existing products as well. The iPhone maker could also leverage its expansive iOS user base to add more to Netflix subscribers.
The numbers tell a different story
However, acquiring Netflix wouldn’t be a wise decision, but rather, it is Apple’s best interest to compete with it, suggests BGR. Business synergy obviously exists here, but the financials don’t make a lot of sense.
Netflix’s market capitalization stands at around $38.9 billion. If Apple tosses on a meager 10% premium, then the purchase price would be about $41 billion, although still Apple could afford it. However, the return on investment from such a purchase would be extremely low, the report says.
For 2015, Netflix’s revenue stood at $6.7 billion. Even if we add the revenue Netflix has earned since 2002, the total doesn’t even reach $32 billion, the report says. In simple language, it can be said that Apple would require vast amounts of money to acquire Netflix, but the revenue in return would be relatively little.
Instead, Apple could spend the money on creating its own programming, something it may already be doing.