Since the stock peaked in October, shares are down more than 25% on concerns about ongoing demand for iPhones as smartphone sales are slowing globally.
Given the state of the smartphone market, investors likely looking for Apple to use “its balance sheet strength to insulate the business against often-seen disruptions in the technology landscape,” wrote JPMorgan analyst Samik Chatterjee.
Chatterjee did note that the prospect of such big acquisitions was purely speculative. Historically, the company hasn’t made a lot of large acquisitions having only twice bought publicly traded companies. Apple occasionally buys smaller companies, including its acquisition of music identification service Shazam late last year for a reported $400 million.
However, the smartphone market is maturing and the tablet market is shrinking, so Apple is likely on the hunt for new markets to conquer.
For JPMorgan, video gaming, video content, and smart home speakers are some of the industries with “the most strategic value” for Apple and would provide “potential growth opportunities to leverage services over a wider installed base.”
In a note to clients, Chatterjee wrote that Netflix is “the best strategic fit” for Apple in the content space, “although we appreciate a combination is less likely as Netflix is unlikely to be a seller for a modest premium.” And at a market cap of $153 billion, it would be Apple’s largest acquisition by far – even with no premium.
But video content would provide “leverage to rapid growth in content consumption on mobile,” and Netflix already has “an established platform to accelerate Apple’s nascent investments in original content,” Chatterjee wrote.
JPMorgan also likes the smart speaker category for its “synergies in driving Apple Music services,” and an acquisition like Sonos, which has a “differentiated position as a premium home speaker system relative to Amazon Alexa and Google Home” as well as “strong loyalty among current customers and [a] robust international presence,” would likely help Apple gain market share in the smart home category, where it currently is lagging competitors with its HomePod products.
And an acquisition in the video gaming space would give Apple “leverage to an industry rapidly transitioning to mobile,” and “hardware capabilities for high-end gaming potential [support] a replacement cycle.”
For Brian Sozzi, executive editor at TheStreet.com, Netflix or electric carmaker Tesla (NASDAQ: TSLA) would be a good match if Apple is interested in making a large deal.
“Investors should be a little worried that Apple will squander this opportunity to move beyond the iPhone,” Sozzi wrote.
Sozzi says Apple should make the plunge on a bigger deal with one of these two companies to prepare itself for the years ahead. “It’s great Apple is betting on itself with its cash, but part of that should include making bets on the future with other companies.”