Jan 16, 2019
Apple's US$130B cash pile fuels Hollywood hopes
Apple Inc. (AAPL.O) has big plans in Hollywood. And Wall Street analysts are increasingly calling on the company to put its cash pile to work, by acquiring one of the entertainment industry's big players.
The idea is not new, but it’s gaining momentum as Apple struggles to maintain its lofty growth goals for the iPhone. Apple recently warned its year-end numbers would fall short of its own expectations due to lower-than-anticipated demand for its smartphones, most notably in China.
Helping to offset that slowing growth, though, is Apple's fast-growing services business. With so many iPhone users around the globe, Apple has a built-in buying audience for offerings such as Apple Music. And, like Netflix Inc. (NFLX.O) and Amazon.com Inc. (AMZN.O), the company has been investing in original television content.
Of course, for any company, there's always a debate over whether you should build or just buy. With that in mind, Daniel Ives of Wedbush Securities published a research note, suggesting that Apple should do "larger, strategic M&A around content over the coming year."
What does Ives have in mind? Studios such as Sony Pictures, A24 and Lionsgate are on his list of contenders. For example, Liongsate has become a big player beyond films, producing hit TV shows such as Netflix's Orange Is The New Black. With a market capitalization of US$3.8 billion, Lionsgate would be a drop in the bucket for Apple, which currently has net cash of about US$130 billion. Net cash is a company's remaining cash after current liabilities are subtracted. In other words, it's the money Apple has to play with after addressing its debts.
Because of how successful the iPhone has been, Apple's bank account has been flooded with cash over the past decade. That US$130 billion figure compares with the roughly US$12 billion in net cash Apple had 10 years ago, and approximately US$2 billion from 20 years ago.
"If they need to crawl into the bomb shelter and protect against a major global economic downturn, Apple, with US$130 billion in cash, is able to do that," Alex Lane, portfolio manager at Dynamic Funds, told BNN Bloomberg in a television interview. "If they need to go out and buy a movie studio, they can go and do that too."
During the company's recent financial update, CEO Tim Cook reiterated Apple's commitment to putting most of that remaining money to use. To date, most of the spending has been earmarked for shareholder-friendly moves like stock buybacks and dividends.
If Apple wanted to go on an even bigger spending spree, Wedbush's Ives suggests targeting a company like Viacom Inc. or CBS Corp.
Beyond that, he even suggests Netflix and Walt Disney Co. Certainly, either one of those targets would be pricey. Currently, Netflix's market capitalization is nearly US$155 billion and Disney’s (DIS.N) is more than US$166 billion. Still, it's something Apple has the luxury of considering, given its cash hoard.
