At the end of its latest quarter, Apple (AAPL) had over $117 billion in cash and investments on its balance sheet. By now, that number is probably over $120 billion, and it could grow to more than $150 billion over the next couple of quarters. Even with Apple now paying a dividend and buying back some of its own shares, or at least repurchasing some to cover options dilution, the cash pile is growing, and at a rapid rate.
Apple is not going to just keep letting its investments pile grow forever. At some point, it will use some of that, and I believe a few acquisitions are coming. I described a few candidates a year ago, and today, while the main focus will shift, one of those names remains on the list. I'm not just going to give names I've come up with, but also some names that I've heard out there that Apple could or should look at acquiring.
This is one name that was on last year's list that comes into play again. For those of you not familiar with the name, InterDigital is a wireless technology developer. The company holds several thousand patents, many of which it is attempting to sell. In June, the company agreed to sell about 8% of its patent portfolio to Intel for $375 million.
Now, you may remember InterDigital tried to sell itself as a whole in 2011. Last year, shares of the company rose from $30 to $80 after the company put itself up for sale, and I had some investors telling me that the company could be worth $120 to $160 as a whole. But after a failed auction process, InterDigital decided to walk away from selling itself, and instead just sell some of its patents.
So it was not a surprise during the recent Apple-Samsung (SSNLF.PK) legal dispute that InterDigital's CEO said that the trial was helping spur demand for the company's patents. It could be possible that Apple would decide to only buy a select group of patents from InterDigital, but it is becoming apparent that intellectual property is becoming more valuable than ever. If someone like Apple came in and offered $50-$60 for the entire company right now, I'd find it very hard for the company not to decide to sell.
Twitter (not public):
There have been numerous arguments for Apple buying Twitter, and you can find dozens of articles, like this one, saying that Apple should jump into the social media space.
Now, that article suggested back in July that Apple would need to spend $10 billion to get Twitter. With Facebook's (FB) stock hitting new lows almost by the day, I don't quite think it would be that much anymore, and if they wait longer, the valuation could come down even more. Would Twitter sell for under $5 billion currently? Probably not, but it's not like Apple can't spend more than that. Twitter is one of the names that has always been out there, so it has to be on my list of potential acquisitions. It probably wouldn't be the first on my list, but it does set up an interesting argument when you see the next name on my list.
Twitter is a very interesting candidate, but I'd go in a different direction when it comes to social media.
So here we have Zynga, a company that has fallen from $16 to under $3, with a market cap now of just $2.1 billion. With the company reducing forecasts lately and investors getting more and more fed up, would a $5 offer be enough to convince the company to sell? Perhaps it would, given that another bad report will put this name under $2.
So here's where I see Zynga fitting in for Apple. It all has to do with Apple TV. When Apple launches its TV product, wouldn't it be nice to play some of Zynga's games on a 50 or 60 inch screen? Who wouldn't want to play FarmVille in high definition? Apple could seriously break into the gaming space with this kind of move.
But another idea has to do with education. We hear reports about schools buying iPads to help children learn, so what if Apple could use Draw Something for that purpose? If a classroom already has iPads, the kids could draw on them, and then have their pictures sent to the Apple TV, and eventually emailed home if they want to do that. Apple has enough great products where they could integrate between. It's really not that far fetched an idea if you think about it.
Discover Financial Services (DFS):
I have to throw out one large and potentially out-there acquisition on my list, so when I came across an article about Apple buying Discover, I thought it was worth a quick glance. After reading the entire article, a good point is made: How about the future of the iPhone when it comes to mobile payments?
But the author brings up some good points. Just because Apple buys out Discover doesn't mean Apple will own the whole business. Apple could keep certain parts, and sell off non-core businesses, like student and home loans for instance. The author's main point is below:
"Discover Financial Services fits the bill. Discover Cards are widely accepted, and more importantly, they're primarily issued by Discover. That means no negotiations with potential competitors that may see Apple as a threat. Sure, Apple could buy Visa or Mastercard, but Discover is a lot cheaper and less complicated.
Apple currently offers financing on its products through Barclaycard, as well as offering an iTunes Rewards Visa card. The company could bring these products in house, and extend financing to broaden sales of no-contract iPhones. Virgin Mobile's iPhone 4S is $649.99; Apple financing could turn that into $50 per month for a year, plus $50 up front."
The mobile payments industry is one to watch going forward, and if you don't agree, just look at the Starbucks (SBUX) deal with Square. So while Apple might not buy the entire company in the end, Discover isn't as far fetched as you might think.
A stadium (or naming rights):
We all know that Apple has no problems with marketing, but think of the potential that a stadium affiliation could have. Apple doesn't need to build its own stadium, it could easily just lease the naming rights to the stadium, and I'm sure there are some out there whose naming leases are ending soon.
But getting the stadium would be more than just a marketing ploy. Apple could also build a flagship store there, which they could use as a huge retail store, but also potentially could test out new products there with consumers. Just think, the average Major League Baseball team draws over 30,000 fans a game. Even with some fans making multiple visits, the average team gets between 1 and 2 million (or more) unique visits each years, and that's just for games. Don't forget that many ballparks also hold tours, concerts, and other events. In addition to just a flagship retail store that would attract a large amount of traffic, there is a ton of potential here. Plus, the added marketing you get from just being the name of a stadium.
Apple could really boost its presence in the mapping arena by purchasing Garmin. Not only could it integrate mapping technology more into the iPhone, but I'm sure if Apple started producing its own GPS units that the Apple die-hards would purchase them.
Apple has already dumped Google (GOOG) maps for iOS 6, but this kind of move would cement Apple's place in the space. It would be one of the larger acquisitions on this list, but I'm sure Apple could make it work. Apple loves to take a shot at Google, and this would do it. Plus, it would provide some more diversification to its product base.
Apple's growing cash pile will allow it to be a little more aggressive when it comes to acquisitions, and I think that it will start making some purchases in the next year. Whether it is simply buying patent pools to strengthen its position for more legal battles, or going to a rapidly expanding space like mobile payments, Apple is always looking for ways to get ahead.
I've listed 6 potential acquisitions that I've either come up with or have been discussed in the marketplace. Now I know that Apple will not be buying all six of these, which is why these are potential acquisitions. Apple may not buy any of these either. For that reason, I'm not arguing that you should run out and throw all your money into these names because Apple will be buying them next week. These are simple possibilities for what Apple will do with its huge cash pile, which is certainly getting larger by the minute.