As Apple’s iPhone revenue falls and it looks to other income streams, JPMorgan is speculating that Apple could buy Netflix, or even a company like Sonos, or Activision Blizzard. In last week’s earnings call, Apple revealed it was sitting on a $245 billion cash stockpile.
At the end of January Cheddar reported that Apple had been secretly planning a gaming subscription service, likened to a “Netflix for games” since early 2018. The development is likely in its early stages and could even be a non-starter for the phone maker.
It’s obvious that Apple needs to take action to secure the status of most valuable US company. Currently, Apple and Microsoft are vying for this kudos, but Apple has overtaken Microsoft once again.
If Apple is pushing services, it could quickly develop a market leading gaming subscription proposition. Or, it could drop the idea and buy media streaming giant Netflix.
Apple already serves around a billion iPhone users or Apple service subscribers. Of these, 360 million customers have paid subscriptions for Apple’s services, like iCloud, or iTunes. This according to Apple analyst Horace Dediu, who says that based on his number crunching:
It’s very likely that the total Apple user base is between 900 and 1 billion. If it’s not 1 billion now then it’s very likely it will be 1 billion within 12 months.
With almost a billion users, 90+% loyalty rate, 95% satisfaction, 120 million paid subscriptions and 75 million new users/yr, the analysis of Apple as a services company is becoming interesting.
Bloomberg puts Apple’s net cash figure at $130 billion with a further $45 billion in cash flow generated each year after dividends. JP Morgan analyst Samik Chatterjee says investors are hoping that Apple uses this cash strength:
To insulate the business against often-seen disruptions in the technology landscape.
The analyst is theorizing on the prospect of acquisition for Apple. Though the technology company isn’t known for this kind of business expansion. Apple’s largest deal ever was a $3 billion deal to acquire Beats Electronics in 2014.
JP Morgan believes that gaming and video content are industries with “strategic value” for Apple. Both are sectors that Apple could reach through its existing user base of likely near a billion. The analysts also say Netflix is the best fit but that:
We appreciate a combination is less likely as Netflix is unlikely to be a seller for a modest premium.
The media streaming market is hotting up. Netflix has led FAANG stock performance over recent months seeing massive share price hikes. Its recent subscription price increase was, in the main, viewed positively.
Amazon already has a good chunk of the market. And, Disney is ending its content deal with Netflix to launch its own streaming service. Disney is also acquiring Fox which will put Hulu within the Disney empire. The iconic brand will probably charge much less than Netflix, offering less volume and variety. But, Netflix will lose its popular Disney shows and movies.
Apple also already has a standalone media streaming service in development which Morgan Stanley expects early in 2019. Analyst Katy Huberty has recently suggested that Apple will offer a media bundle. Huberty also sees a massive upside to Apple stock based on both its range of services and TV streaming. She gives the stock a $211 price target. In comparison, JP Morgan has put out a target Apple share price of $228.
Whether Apple decides to buy Netflix or compete with its own offerings it is clear that services look set to propel Apple’s earnings for 2019. Analysts appear confident. And, shareholders may be reassured that Apple has managed to shake off its shock iPhone sales revisions of a few weeks ago. These revisions sent US stock markets reeling.
Last modified: May 20, 2020 12:47 PM UTC