Netflix and chill? Or should we say Apple and Chill?
While no bid has been confirmed yet, Citi analysts Jim Suva and Asyia Merchant recently claimed that there is a 40% chance of Apple buying Netflix. It goes without saying that this analysis will be a hot topic in the news and will garner headlines.
The analysts based this argument on Donald Trump’s recent cut in corporate tax, which would leave Apple with $252 billion in overseas cash to repatriate. And since the company would need to find a way to spend their billions, hence the assessment.
“The firm has too much cash – nearly $250bn – growing at $50bn a year. This is a good problem to have, 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. With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220bn for M&A [mergers and acquisitions] or buybacks.” Suva and Merchant told clients in a note.
It would, of course, be boring and obvious to tell people that Apple will stay the course and continue making sensible decisions like making smaller acquisitions (like taking over Shazam), expanding the budget for research & development and buying back shares and growing their dividends. So why not make a much splashier prediction stating that Apple will do something exciting with its newly available dosh like buying Netflix, Walt Disney or Tesla! Let’s see what Elon Musk has to say about that.
For those of you pondering over how the analysts managed to come up with an estimated guess of 40% chance of Apple buying Netflix, they seem to have pulled it out of thin air. Because, as far as we know, Apple has been nothing but secretive about its long-term plans and has a long-standing history of investing in startups. This leads us to believe that this analyst note is nothing more than a mere speculation.
Regardless, the Citi analysts have nothing to lose by making the prediction. If proved wrong, they can easily claim that according to them there was a 60% chance of the deal not happening. And if proved right, they can hang their hat on it and say they were the ones who made the prediction.
Apple has already set aside a huge sum of $1 billion for its original TV and video programming ambitions. The company has worked on multiple TV shows, one of them including a TV drama starring Reese Witherspoon and Jennifer Aniston. Buying Netflix for $75 billion now would be a desperate move signaling towards a major organizational shift and might raise a few white flags on the way. Apple is less likely to take that risk.
Considering that Apple’s largest acquisition till date was buying Beats in 2014 for $3 billion, it’s highly doubtful that it would buy Netflix, especially when they have been competing against each other. Citi probably knows that, but hey who doesn’t like attention. While the chances of Apple taking over Netflix are slim, Netflix’s already overpriced and overhauled shares would probably get a boost from all this drama.
And in case Apple does decide to buy Netflix, as the saying goes: if you can’t beat ’em, buy ’em.