New analyst speculation suggests Apple cash repatriation increases odds of Netflix acquisi...

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in AAPL Investors
Apple could potentially acquire the major video streaming service Netflix, analysts from Citi suggest, highlighting one of a number of ways Apple could use its $252 billion warchest in cash held overseas that it could repatriate to the U.S., following a cut in corporate taxes and changes to tax rules.




A note from Citi analysts Jim Suva and Asiya Merchant sent to clients in December offered a list of companies that Apple could have the capability of acquiring, if it decides to take advantage of the U.S. government's tax reform package. As well as reducing the federal corporate tax rate, the Tax Cuts and Jobs Act also offers a one-time repatriation of a company's cash held overseas, significantly reducing the amount of tax owed on the transferred funds.

According to Business Insider, the analysts claim there is a 40 percent chance that Apple will acquire Netflix, if it does repatriate its funds. Suva and Merchant believe that if Apple repatriated all of its foreign-held funds, giving it approximately $220 billion to use after the 10 percent repatriation tax, the company would require around a third of the total to purchase Netflix.

For comparison, the list put an acquisition of Disney at a probability of 20 to 30 percent, though the note was written before Disney's deal with Fox. Other potential targets noted by the analysts include game companies Activision, Take-Two, and EA at a 10 percent probability of occurring, car producer Tesla at around 5 percent, and Hulu at around 1 percent.

"The firm has too much cash - nearly $250 billion - growing at $50 billion a year. This is a good problem to have," wrote the analysts. "Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use."

A potential acquisition of Netflix has been speculated before, and with Apple's push towards original content and available cash, the rumors are likely to continue for some time. Apple's video content ambitions have already led to a number of deals that will help it create original content, and it is more probable that some of the repatriated cash could go to enhance its content projects.

In 2017, Apple has secured a drama starring Jennifer Aniston and Reese Witherspoon, reportedly provided a blank check to Drake for his own shows and movies, and signed a deal with "Star Trek" and "Battlestar Galactica" reboot alum Ronald D. Moore for a new space drama. It is also reportedly paying $5 million per episode on a ten-episode season of "Amazing Stories," a revival of the Amblin Television and NBCUniversal science fiction anthology.

These are all thought to be part of a broader $1 billion investment in original programming, which is considerable but still a lower investment than those of its competitors, such as Netflix's reported $7 billion on original content for 2018.

Such a large purchase for Netflix may be unlikely, according to analysis by Loup Ventures' Gene Munster, who insisted in December that Apple would stick to its acquisition strategy of buying companies worth less than $1 billion. Rather than making major investments, Munster expects Apple to increase its share buy-back program and increase its annual dividend.
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Comments

  • Reply 1 of 49
    lkrupplkrupp Posts: 6,381member
    While I think it’s not in the cards for Apple to buy Netflix the evil fanboy in me wants it to happen just to listen to the trolls scream and holler about how they will cancel their subscriptions and never use Netflix again. That would be epic enough for me. /s
    berndogbrian greenRayz2016SnickersMagoosuddenly newtonrazorpitmacxpressjahbladeJWSCairnerd
  • Reply 2 of 49
    maestro64maestro64 Posts: 4,261member
    I do not think it is good idea to buy Netflix these days, I have not been too happy with them, and recently I found myself watch prime video over Netflix and talking with my kids they too are not too happy with them. I think this rumor is being put out to drive up Netflix stock so investors can cut their loses at this point. Hulu and Prime Video seem to be the new game in town.
    gregg thurmanJWSCairnerd
  • Reply 3 of 49
    I never, ever comment on BS articles, but this one made me create an account. How many times in the past has some analyst predicted that Apple would buy company X at some extravagant rate? Here is one: Apple will buy Phillip Morris so that Apple can make Apple cigarettes that will pull more users/addicts into the Apple ecosystem making Apple the first multi-trillion dollar company. There, now I am an analyst.
    king editor the grateglynh1983retrogustomuthuk_vanalingamStrangeDayslkruppstompySpamSandwichrazorpit
  • Reply 4 of 49
    "... the analysts claim there is a 40 percent chance that Apple will acquire Netflix ..." I wonder if Vegas has opened a book so we can all speculate.
  • Reply 5 of 49
    LukeCageLukeCage Posts: 161member
    New Year same story, too much of a culture clash,  and would be very difficult to integrate the two companies. Also there's something like a 70% - 90% chance of failing when it comes to big mergers.  How many huge acquisitions have been successful over the years, very few and of those that were successful they were very specific or could have only benefited the specific company buying it. If we take a look at some of last years big acquisitions like Amazon and Whole Foods or Disney and Fox or CVS and Aetna, these all look like good deals but so did Aol and Time Warner, Google and Motorola and Microsoft and Nokia deals. 
    minicoffee
  • Reply 6 of 49
    I love the "40% chance" prediction.  It's a can't-lose proposition.  If Apple buys Netflix, they can say "see, we told you this was a logical use of Apple's money!"  If they don't they can say "see, we told you it probably wouldn't actually happen."

    Personally, I'm of two minds about this.  If Apple buys Netflix (which would surprise me), I'd be excited that my favorite company is doing something bold and exciting.  But if they tried to restrict Netflix content to Apple devices, it would be a terrible decision from a PR and business perspective.  And if they didn't do that, what's the point of buying Netflix?
    muthuk_vanalingamrazorpit
  • Reply 7 of 49
    thedbathedba Posts: 450member
    I guess there's a chance for everything but I do find 40% a tad bit high. The analyst may have slipped in one zero in there by accident, following New Year's celebrations. 
    randominternetpersonrazorpitchialito_lupena
  • Reply 8 of 49
    jungmarkjungmark Posts: 6,548member
    There is a 0.5% chance apple gives me $5 billion. 


    jahbladeJWSC
  • Reply 9 of 49
    rogifan_newrogifan_new Posts: 3,216member
    Apple is going to spend $70B on Netflix. This person must be smoking the same stuff Gene Munster was when he said Apple would release a television set.
    thedbarandominternetpersonforegoneconclusionrazorpitchiaJWSC
  • Reply 10 of 49
    bloggerblogbloggerblog Posts: 1,777member
    You should see Citi's analytics chart, it's hilarious. I wonder how they come up with those metrics, what is the probability based on?

    LukeCageh2p
  • Reply 11 of 49
    19831983 Posts: 1,101member
    Netflix is 10s of billions of Dollars in debt. The quality of its original programming (The Crown excepted...excellent show!) is dropping and other streaming services of late seem to be doing more interesting things. Not currently a great buy for Apple IMO.
    chia
  • Reply 12 of 49
    bloggerblogbloggerblog Posts: 1,777member
    1983 said:
    Netflix is 10s of billions of Dollars in debt. The quality of its original programming (The Crown excepted...excellent show!) is dropping and other streaming services of late seem to be doing more interesting things. Not currently a great buy for Apple IMO.
    Huh! Have you heard of "Stranger Things"?
    Netflix went from $14 per share to $200 in five years. That's 1,430%
  • Reply 13 of 49
    thrangthrang Posts: 732member

    I really don't understand this. There are two key drivers for Netflix, correct? 1) Original programming and 2) contracted streaming rights for third party content.

    How much is their original programming worth? And third party rights are time limited, can change, and may change if Apple buys them.

    And isn't Disney puling all/most of Disney/Fox content to go direct in the next two years? Might others?

    How different are their client bases?

    If Netflix is $20b in debt, what is the valuation one could put on the above? Their p/e ratio is super high as well, so I really don't get this one...

    Apple would be better served putting a few billion into developing an array of productions for their own content, as it seems aggregation may give way to a direct model. Have enough exclusive iTunes content, and people will buy Apple TV's and invest in the ecosystem, making other providers compelled to continue to provide apps for the platform.


    tmaybrucemc
  • Reply 14 of 49
    jd_in_sbjd_in_sb Posts: 1,481member
    It would be totally out of charscter to buy Netflix. They like to build their own. Apple could have used change in the couch to buy Spotify but didn’t. Plus the value of Netflix implodes when acquired because the content deals are void. 
    edited January 2 entropys
  • Reply 15 of 49
    StrangeDaysStrangeDays Posts: 5,578member
    Apple could also put its money into funding generic research for reviving extinct dinosaurs to populate a new theme park island with. Anything’s possible, right?
    zeus423entropys
  • Reply 16 of 49
    rogifan_newrogifan_new Posts: 3,216member
    1983 said:
    Netflix is 10s of billions of Dollars in debt. The quality of its original programming (The Crown excepted...excellent show!) is dropping and other streaming services of late seem to be doing more interesting things. Not currently a great buy for Apple IMO.
    Huh! Have you heard of "Stranger Things"?
    Netflix went from $14 per share to $200 in five years. That's 1,430%
    So maybe Apple should have bought them 5 years ago?
    zeus423
  • Reply 17 of 49
    "Apple to buy Netflix" is a great rumor for Netflix shareholders and doesn't do anything for Apple shareholders. Netflix is now over $200 a share with a P/E of 202.x because of that rumor. That is damn sweet rumor for Netflix shareholders. Apple should create its own video streaming service and go head to head with Netflix and show Netflix shareholders some pain. Even if Apple did acquire Netflix it wouldn't help Apple shareholders all that much. Wall Street would suddenly find a reason to devaluate the acquisition. I think Netflix is currently too expensive for Apple to be buying. I honestly think Apple can pull its own subscribers if the video streaming service Apple creates has equally as good content as Netflix.
  • Reply 18 of 49
    SoliSoli Posts: 8,283member
    maestro64 said:
    I do not think it is good idea to buy Netflix these days, I have not been too happy with them, and recently I found myself watch prime video over Netflix and talking with my kids they too are not too happy with them. I think this rumor is being put out to drive up Netflix stock so investors can cut their loses at this point. Hulu and Prime Video seem to be the new game in town.
    My only real complaint with Netflix is that the user profile doesn't stay automatically chosen. I find that annoying, but I find that Prime Video intermixing "free" and rentable content without a clear demarcation until you get to the paywall is more annoying. As much as I loved Top Gear (UK) I've barely even watched The Grand Tour, and I think it's because I dislike accessing their video portal… and that's despite loving their video player options, like X-Ray.
    h2p
  • Reply 19 of 49
    SpamSandwichSpamSandwich Posts: 29,865member
    I love the "40% chance" prediction.  It's a can't-lose proposition.  If Apple buys Netflix, they can say "see, we told you this was a logical use of Apple's money!"  If they don't they can say "see, we told you it probably wouldn't actually happen."

    Personally, I'm of two minds about this.  If Apple buys Netflix (which would surprise me), I'd be excited that my favorite company is doing something bold and exciting.  But if they tried to restrict Netflix content to Apple devices, it would be a terrible decision from a PR and business perspective.  And if they didn't do that, what's the point of buying Netflix?
    Netfix’s current arrangements with studios would not survive a transfer of ownership. Their value as a company is mainly to their customers, not to an acquiring entity.

    In other words, these armchair analysts at Citi are frauds.
    edited January 2 entropysh2p
  • Reply 20 of 49
    Probably just an attempt at stock manipulation. Apple would be better off spending that kind of money on their own original content...if in fact they're really that committed to original programming in the near future. That remains to be seen.  
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