Reading this good article on tech / momentum stock bubbles bursting (the sector actually has been deflating for months already in private valuations and smaller listed companies, IPO pipelines are also shrinking)...
reminded me of various perma-bull analysts pushing (even begging) tech giant Apple to buy various companies back in 2014 and 2015:
As a reader replying to my tweet pointed out, (at least) two companies could be added to that list:
- $FIT and $P.
Looking at stock charts in early February 2016, there's now a veritable fire sale going on in these seven stocks.
Apple could now get these companies at a 'get 5, pay for 1 company' or even a '7 for 1' discount (it apparently still doesn't want to bite) compared to all-time highs.
I'm glad Apple management didn't cave in to outside pressure and didn't buy any of these companies at bubble levels back in 2014-2015.
To reiterate (for newbie investors) again, Apple has been very frugal in terms of M&A - a stark contrast compared to the aggressive M&A moves $GOOGL and other tech giants made in recent years.
Apple's only multi-billion target in recent years was Beats/Beats Music, and that was for a private company. Wikipedia offers a fairly complete of companies acquired by Apple:
en.wikipedia.org/wiki/List_of_mergers_an...
Bottom line: The "we are potential M&A target for $AAPL" line often was the last Hail Mary pass for the VCs and stock investors in bubbly tech companies out of touch with fundamentals.
Financial metrics in these names never match(ed) reasonable valuations by miles - the market has finally come ot its senses and realized this as of early 2016.
Just have a look at the long-term charts of the seven companies (with the sole exception of $NFLX) listed above, the collapse from all-time highs is remarkable, companies like $GPRO lost up to 90%.
What if I had to chose one company from that list (and why even that choice doesn't make a lot of sense)?
If I had to choose a company $AAPL might acquire at a lower price from that list, it's $NFLX. But even that is improbable in my opinion.
A short list of reasons from some of my earlier comments on the subject:
A huge part of the value [from a consumer's perspective] of Netflix is that it's available on basically all platforms and devices out there. Apple on the other hand only offers the bare minimum of services on other platforms (Music for Android plus iTunes for Windows) - that's of course on purpose so that people buy their hardware.
I don't see Apple willing to support all these third-party platforms (the DVD service could be split off, but the tech platforms have contracts with NFLX that would take time unwinding).
As for the rest, Apple can create a NFLX competitor quickly if so needed/wanted:
- Apple has the money to finance its own shows or get (time-)exclusive access if they want to.
- Apple has the pipes and content delivery network(s), some even in-house now, Apple relies less and less on AKAM.
- Apple has the content in iTunes (it can change from a la carte pricing to monthly subscriptions if so needed)
But I still don't see why Apple WANTS to do either move (creating its own content on a grand scale or buying NFLX). Why?
- A lot of content is local. Apple would need to buy or even create lots of overseas content as well to be able to appeal to a global audience.
- I just don't see this happening on a grand scale given Apple's current operating margins - content owners with high-value entertainment or live offerings (sports, concerts etc.) can game bidders against each other (does Apple want to play this race-to-the-bottom-margin auction game?).
- The jury is therefore still out how profitable NFLX can really become. (Netflix of course embarked on this exact strategy: A truly global audience in almost 200 countries AND creating own custom content globally as well as locally to have leverage against 'greedy' content owners...)