Apple Inc. investors likely want the tech giant to use its massive cash pile to make acquisitions, and Netflix Inc., Activision Blizzard Inc. and Sonos Inc. are among the companies that JPMorgan sees as a strong strategic fit.
Shares of Apple are down more than 25% from an October record, dropping on concerns about 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 given that Apple has about $130 billion 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,” JPMorgan analyst Samik Chatterjee wrote. JPMorgan has an “overweight” rating on Apple stock, along with a $228 price target.
Apple stock rose 2.8% on Monday to $171.25 a share, notching its fourth straight daily gain.
Chatterjee noted that the prospect of such deals was speculative and theoretical. It would also be atypical for Apple, which historically has not been an aggressive buyer of other companies. According to Bloomberg data, Apple has only twice bought publicly traded companies.
Furthermore, most of Apple’s acquisitions have been on the smaller side. Although it — along with other buyers — was involved in an $18-billion purchase of Toshiba Memory Corp., one of its largest deals ever was a $3-billion acquisition of Beats Electronics in 2014.
Apple didn’t immediately return a request for comment, and neither did Netflix or Activision. A representative of Sonos said the company didn’t comment on rumors or speculation.
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.”
Los Gatos, Calif.-based 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 about $150 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 to clients. Shares of Netflix rose 3.4% on Monday.
The speaker category has a “focus on high engagement with customers,” he wrote, and it offers “synergies in driving Apple Music services.”
Apple is “currently lagging competitors in the smart-home category,” JPMorgan wrote, referring to Apple’s HomePod product line. Sonos, in contrast, has a “differentiated position as a premium home speaker system relative to Amazon Alexa and Google Home,” along with “strong loyalty among current customers and [a] robust international presence.”
Santa Barbara-based Sonos has a market cap of about $1.2 billion. The stock rose 7.2% on Monday, notching its seventh straight daily gain — the longest such streak in its history.
For Apple, JPMorgan said, a video-game acquisition would offer “leverage to an industry rapidly transitioning to mobile,” while the “hardware capabilities for high-end gaming potentially [support] a replacement cycle.”
Among targets mentioned in news reports, JPMorgan wrote, “we find Activision Blizzard to be the best strategic fit” for Apple. Shares of Activision rose 1.7% on Monday. The Santa Monica company has a market cap of about $35 billion.