Here Is A Valid Reason For Apple Inc. To Buy Netflix, Inc.

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Apple’s App Store revenue is getting a major contribution from Netflix, and analysts think it is one of the strongest reasons for the iPhone maker to consider acquiring the streaming firm.

Netflix’s rising clout

On Tuesday, analytics firm Sensor Tower stated that in 2016, spending surged 130% year over year in the App Store’s “entertainment” category, which consists of HBO Now, Netflix and Hulu. Netflix started monetizing through App Store subscriptions in the fourth quarter of 2015. Netflix contributed about $58 million in gross revenue to the category in the fourth quarter, an increase from the mere $7.9 million a year earlier, according to the Sensor Tower report.

Investors are keen to learn if Apple is interested or planning anytime soon to acquire an entertainment technology company such as Netflix to utilize its huge cash pile, according to CNBC. Technology investor Eric Jackson has already said that Apple “clearly should have bought Netflix.”

The Cupertino, California-based company stated earlier that it is looking to double its service revenue, which includes the App Store, by 2020. However, despite having a cash pile of over $240 billion, the company has been shying away from making major acquisitions, and Netflix has not given any hints about entertaining even the thought of being acquired.

Earlier this month, Eddy Cue, Apple’s head of content, said at Recode’s Code Media conference, “[I]f we wanted to do what everybody else is doing, then you’re right, we might be better off buying somebody or doing that. But that’s not what we’re trying to do. We are trying to do something that’s unique.”

Apple focuses on services to maintain margins

Entertainment apps contribute about $2.30 of the $40 spent by U.S. iPhone owners in 2016. According to Sensor Tower, this number is less than the amount spent on games and music downloads. Though the most revenue was generated from the games section, entertainment remained the biggest growth category. About 80% of the total revenue was generated by games in 2016.

Apple does not give a breakdown of App Store spending. However, the company has over and over again stated that its “services,” which mostly includes the rent it gets from operating the App Store and iCloud and Apple Music, will be the focus, as it wants to keep its overall margin high despite sluggish growth in iPhone sales.

On Tuesday, Apple shares closed up 0.72% at $136.70. Year to date, the stock is up more than 18%, while in the last year, it is up more than 42%.

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