Wish List For Apple Inc. Acquisitions: Tesla Inc, Netflix, Inc. — And Then Reality

Updated on

Apple Inc. (NASDAQ:AAPL) made a very loud announcement about its plans for cash repatriation earlier this week, which included a bold statement that 20,000 jobs will be created. The iPhone maker was essentially tapping into all the noise being made by major U.S. banks, which all took massive charges against their fourth-quarter results in connection to the 2018 tax reform bill. While the announcement was quite loud, many analysts are pointing out that it didn’t include anything that’s of particular interest to investors. Because of the glaring hole, some are filling it with their own commentary, such as suggestions for Apple acquisitions.

Apple jobs announcement just a PR stunt aimed at consumers?

With a few exceptions, analysts are generally pointing out that much of what the company announced was probably going to happen with or without the tax reform and cash repatriation. As a result, we might consider that the Apple jobs announcement was essentially a PR stunt aimed at consumers and not investors. Perhaps the company is trying to make consumers feel better about its products, potentially spurring more sales following what some analysts are warning might have been a weak holiday quarter.

Nomura Instinet analyst Jeffrey Kvaal said in his note on the Apple jobs announcement that even though the company said it was announcing plans for the cash it will repatriate thanks to the tax reform bill, we didn’t actually learn anything. He noted that, based on the $38 billion tax bill that’s expected, it sounds like the iPhone maker plans to repatriate most of the $252 billion in cash it holds overseas, but it never said how much. Apple also didn’t say what it plans to do with its repatriated cash.

Here’s what Apple said it was announcing

Apple did estimate its direct contribution to the U.S. economy at about $70 billion over the next five years, but Kvaal said the company already spends about that much. He estimates the company’s spending with U.S.-based suppliers at about $55 billion per year and its domestic capital expenditures budget at about $6 billion per year, which he says is about what it spends already.

As a result, he said that for all the supposed details in the Apple jobs announcement, we really have “little new insight” on what the company plans to do with all the cash it intends to repatriate. Piper Jaffray analyst Michael Olson offered similar commentary, emphasizing that most of what was in the Apple jobs announcement was probably going to happen whether or not the company repatriated cash.

Investors and analysts were particularly interested in the company’s plans for share repurchases, and RBC Capital analyst Amit Daryanani believes that most of the repatriated cash will be used for buybacks and dividends. However, Kvaal and Olson offered insight into the potential for Apple acquisitions.

Wish list for Apple acquisitions

Kvaal pointed out that about a year ago, Apple CEO Tim Cook pointed out that they’re also looking at potential acquisitions of all sizes. Because of how much cash the company will have available after repatriating its stash, media outlets have been offering up wish lists for Apple acquisitions. Those lists tend to favor exciting names such as Tesla Inc (NASDAQ:TSLA) or Netflix, Inc. (NASDAQ:NFLX), names both suggested by The Street. The media outlet said that investors should worry that Apple “will squander this opportunity to move beyond the iPhone” and advocated paying $130 billion to buy Netflix or $75 billion to buy Tesla.

However, just because Apple acquisitions could include such massive firms, it doesn’t mean that the company would buy them.

Piper’s Olson noted that although the media has been fantasizing about massive Apple acquisitions, the company tends to favor smaller deals. He said he “would not be surprised to see an increase in the company’s appetite for gobbling up smaller strategic technology businesses.”

Analyst-turned-venture-capitalist Gene Munster offered some potentially more realistic Apple acquisitions, such as virtual and augmented reality firm Magic Leap and health and fitness equipment maker Peloton. Pitchbook also suggested some smaller potential Apple acquisitions, such as chip maker MultiPhy and Valens Semiconductor.

Apple stock tipped lower in intraday trading on Friday, falling as low as $177.76.

Leave a Comment