Should Netflix, Sonos be on Apple’s radar?

JPMorgan speculates on strategic fits for the cash-rich tech giant

Apple investors are likely looking for the company to use its massive cash pile to make acquisitions, and names like Netflix, Activision Blizzard and Sonos are among the companies that JPMorgan sees as strong strategic fits.

Shares of Apple have lost more than 25 per cent from an October record, dropping on concerns over the demand prospects for its key iPhone product line. In its most recent quarterly report, the company posted its first holiday-quarter sales decline since 2001, a drop that was almost entirely due to lower smartphone sales.

Given this environment and considering that Apple has roughly $130 billion (U.S.) in net cash — along with an average of $45 billion in cash flow generated every year after dividends — investors are likely hoping that Apple “uses its balance sheet strength to insulate the business against often-seen disruptions in the technology landscape,” analyst Samik Chatterjee wrote. JPMorgan has an overweight rating on Apple stock, along with a $228 price target.

Chatterjee noted that the prospect of such deals was speculative and theoretical. It would also be atypical for Apple, given it has historically not been an aggressive buyer of other companies. According to Bloomberg data, Apple has only twice bought publicly-traded companies.

In JPMorgan’s view, video gaming, video content and smart home speakers are among the industries with “the most strategic value,” for Apple, “providing potential growth opportunities to leverage services over a wider installed base.”

Netflix was deemed “the best strategic fit” for Apple in the content category, “although we appreciate a combination is less likely as Netflix is unlikely to be a seller for a modest premium.” The video-streaming giant has a market capitalization of $148.4 billion.

Video content provides “leverage to rapid growth in content consumption on mobile” and Netflix has “an established platform to accelerate Apple’s nascent investments in original content,” Chatterjee wrote.

The speaker category has a “focus on high engagement with customers,” and it offers “synergies in driving Apple Music services.”