Through the years we’ve heard a clarion call for Apple to ante up and buy Adobe, Yahoo!, Tesla, AMD, Sprint, or some other company that does what Apple does not. It’s not that Apple cannot afford to buy a big company or two. Or, all of them. What would Apple do with this company?
Buy Netflix! Or, Else!
The latest to hit the fan calls for Apple to buy Netflix. Why? Well, because, you know– Netflix has the streaming television and movie market cornered. Or, so the story goes.
Apple sits on a cash hoard of nearly $150-billion dollars so it could afford Netflix, even at the current premium stock price. Hey, Apple could afford to buy Hollywood. And probably Bollywood.
The reasoning behind the call to buy Netflix is dubious at best. Why buy Netflix? The answers range from ‘Because…’ to ‘Apple could miss out…’ to ‘Apple is doomed… if it does not buy…’ That’s all standard fare for why Apple should do this or that.
Netflix would be an interesting purchase for Apple. Few companies could afford the $33-billion market cap the way Apple can, but Netflix’s price to earnings ratio of 145 pales to Apple’s 17, despite a crazy high stock price for a company that does not make much money.
What Netflix has is what the stock market likes. Money and growth. Already there are more than 62-million subscribers. About 1/10th of the number of Apple’s customers. Like Amazon, Netflix is mostly U.S. centric, while Apple derives most of its revenue and profits abroad. On the financial side, Apple makes lots of money while Netflix does not, so any acquisition would dampen Apple’s numbers (dilutive vs. accretive).
Netflix has a huge library of TV shows and movies, but those agreements with content providers are not exclusive, so the company has begun creating its own award-winning content. Subscription models seems to be all the rage these days, and Apple doesn’t have a foot in that door. Yet. Beats might change that, but, as usual, Apple is late to a new trend, and Netflix is as trendy as they get.
Why won’t Apple buy Netflix?
Two words. Money and fit.
First, Apple can afford Netflix, but can it afford to diminish its own financials to do a deal? I don’t think so.
Second, Apple can easily replicate what Netflix does– it has streaming capability already (and can buy more and build more as needed), and getting similar deals from content providers is just math. Apple could buy its way into the streaming video market which would diminish the Netflix game as the company pushes a new home and mobile video service to half a billion current customers.
Apple’s acquisition of Beats at $3-billion or so was the company’s largest ever. Netflix would cost 10 times that amount. Does anyone not believe Apple could build a Netflix competitor for less than $30-billion?