Apple's Didi investment is surprising but good use of massive $233B cash hoard, analyst says
Investment firm Piper Jaffray views Apple's Didi funding as a new direction for the company, providing long-term strategic positioning benefits in China's expanding automotive industry.
Apple traditionally has not made venture-style investments, so its new $1 billion investment in Didi Chuxing, China's largest ride-sharing company with some 90 percent of the potential ride-share market, initially came as a surprise.?But analyst Gene Munster in a note to investors on Friday pointed out that the Didi investment makes sense given Apple's interest in China. Apple's $1 billion investment is its second largest cash outlay after Beats, acquired for $3 billion in 2014.
While $1 billion is a large sum for many countries, let alone private corporations, it's a drop in the bucket for Apple -- a company that in its most recent earnings report claimed a $232.9 billion cash pile. Apple has ignited controversy by holding as much as 90 percent, or $208.9 billion, of those assets outside the U.S. in a bid to avoid repatriation taxes.?
Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation.
Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation. The move represents a step in a new direction to address these concerns, while at the same time helping investors make a return.
In 2014, activist investor Carl Icahn voiced his belief that Apple's shares were dramatically undervalued and should be trading at $203 per share, a price target he later bumped to $216 a share and, at its highest, $240 per share. Although Icahn recently dumped his position in Apple amid on Chinese market concerns, he has long pushed for the company to put its reserves toward aggressive stock buybacks.
Icahn is not alone in his concern about this apparent "excess" in liquidity, as other Apple investors want to reap benefits from Apple's cash pile. To address this need, Apple has accelerated its stock repurchase program and a quarterly dividend as part of plans to dish out $250 billion to shareholders by March 2018.
Like others, Piper Jaffray also believes the Didi investment could assist Apple in directing its "Project Titan" car effort. Munster sees the potential of on-demand taxi services such as Didi's, noting such software platforms might be more profitable than traditional car sales in an autonomous vehicle future. If and when the auto industry shifts to self-driving products, brand value -- normally an advantage for Apple -- will likely diminish, Munster said.
In China, Didi faces stiff competition from international ride-sharing giant Uber China, which last year raised $1.2 billion in funding to put toward Chinese operations. Taking part in that funding round was local search engine giant Baidu. Like its U.S. counterpart Google, Baidu is investing heavily in autonomous vehicle technology, and company CEO Robin Li said working models should be available by 2018, followed by production at scale by 2020.
While Apple's endgame remains unclear, Munster believes the Didi investment might represent the company's first steps in disrupting yet another industry. If Apple can successfully integrate an autonomous taxi service software platform with a well-designed, user-friendly hardware system built for consumer cars, for example, it might have a repeat of iPhone on its hands, the analyst said.
Apple traditionally has not made venture-style investments, so its new $1 billion investment in Didi Chuxing, China's largest ride-sharing company with some 90 percent of the potential ride-share market, initially came as a surprise.?But analyst Gene Munster in a note to investors on Friday pointed out that the Didi investment makes sense given Apple's interest in China. Apple's $1 billion investment is its second largest cash outlay after Beats, acquired for $3 billion in 2014.
While $1 billion is a large sum for many countries, let alone private corporations, it's a drop in the bucket for Apple -- a company that in its most recent earnings report claimed a $232.9 billion cash pile. Apple has ignited controversy by holding as much as 90 percent, or $208.9 billion, of those assets outside the U.S. in a bid to avoid repatriation taxes.?
Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation.
Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation. The move represents a step in a new direction to address these concerns, while at the same time helping investors make a return.
In 2014, activist investor Carl Icahn voiced his belief that Apple's shares were dramatically undervalued and should be trading at $203 per share, a price target he later bumped to $216 a share and, at its highest, $240 per share. Although Icahn recently dumped his position in Apple amid on Chinese market concerns, he has long pushed for the company to put its reserves toward aggressive stock buybacks.
Icahn is not alone in his concern about this apparent "excess" in liquidity, as other Apple investors want to reap benefits from Apple's cash pile. To address this need, Apple has accelerated its stock repurchase program and a quarterly dividend as part of plans to dish out $250 billion to shareholders by March 2018.
Like others, Piper Jaffray also believes the Didi investment could assist Apple in directing its "Project Titan" car effort. Munster sees the potential of on-demand taxi services such as Didi's, noting such software platforms might be more profitable than traditional car sales in an autonomous vehicle future. If and when the auto industry shifts to self-driving products, brand value -- normally an advantage for Apple -- will likely diminish, Munster said.
In China, Didi faces stiff competition from international ride-sharing giant Uber China, which last year raised $1.2 billion in funding to put toward Chinese operations. Taking part in that funding round was local search engine giant Baidu. Like its U.S. counterpart Google, Baidu is investing heavily in autonomous vehicle technology, and company CEO Robin Li said working models should be available by 2018, followed by production at scale by 2020.
While Apple's endgame remains unclear, Munster believes the Didi investment might represent the company's first steps in disrupting yet another industry. If Apple can successfully integrate an autonomous taxi service software platform with a well-designed, user-friendly hardware system built for consumer cars, for example, it might have a repeat of iPhone on its hands, the analyst said.
Comments
Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
Streaming is a whole market that has potential just as great.
Beats hardware could potentially generate 6 billion a year under Apple's umbrella. Before being acquired they were generating 3 billion a year with little to no advertising.
Bluetooth is the future and Beats is the Titanic audio brand, I wouldn't be surprised if Tim Cook announces a new Bluetooth product category soon. Headphones, Bluetooth stereos, streaming.... Don't be surprised if the 3 Billion dollar Beats deal generates 12 Billion a year in a decade.
The Didi deal is also great. Very interesting and mysterious. I hope they use the service for transportation research and mapping China.
Before Apple acquired them they would share numbers. 3 billion was the last one I remember.
By your same logic I can say the Didi deal WON'T have larger ROI. Apple just invested so there's no way of telling.
Not saying it won't, but you definitely can't put down the Beats deal when it's already proven valuable in hardware, streaming and influence/"coolness".
Watching android users jamming out in Beats headphones reminds me how genius the acquisition was. You can bet Apple made more profit on those headphones than the android manufacturer made on the phone.
I use the word "potentially" for two reasons:
1. I believe Apple is a huge company with enough talent/money/influence to at least double Beats revenue in the future.
2. Like you mentioned, it's under the "others" category so we will never actually know if/when it's generating 6 billion unless Cook tells us.
So the word "potentially" fits but I'm confident the brand will expand under Apple.
Beats has proven themselves to be more than a fad, they still sell like crazy and have their own dedicated section in most electronics stores. They're not a Walkman and have been around for a long time already and haven't slowed down from what we see.
Influencing new customers, streaming, patents, Iovine/Dre, and the hardware is basically free money.
If Apple had wanted to buy a headphones company, they'd have bought Sennheiser, AKG, or AudioTechnica.
Apple bought Beats to get connections to the Music industry to help negotiate for their streaming service, while picking up a bit of know-how from beats' streaming service and some sub-par headphones along the way.
If they couldn't have done more with less is idle speculation in absence of a parallel universe to compare to but not easily dismissed, because there are plenty of good arguments as to why they overpaid (but the valuations of acquisitions in the internet age defy common sense and ROI calculations anyway, they are more shock and awe money burning flash grenades...)
If you think Hiphop is only the purview of "blacks", you haven't seen the US Hot 100 charts lately or looked at what kids have on their heads or listen to.
Blacks have had a massive effect on US culture post 1918.
HipHop, RnB, Jazz, Rock & Roll and roots music and general popular culture have all been marked by this influence.
This influence has always come through youth culture first to them filter into the rest of society.
Since blacks were seen as "not mattering" and being free from the constraint of "normal society) (this comes in part from stereotypes),
anything new could simmer there and those seeking it out could leave their safe haven to seek that excitement.
The next big thing doesn't develop in "normal" society but on the fringes.
Apple and jobs once saw themselves as a rebels, so I find this kind of country club attitudes of current Apple buyers kind of funny.
That's the ironic thing that blacks have had so much impact and there are still realy weird comments like yours that seem to be stuck in the segregation era.
The Apple brand of cool is firmly rooted in the aesthetic of the mid-2000s and needs to find ways to evolve or risk being a "dad phone". Beats is part of that.