Time's Running Out for Apple to Make Blockbuster Media Acquisition: Analyst

January 14, 2019

By Michael Teich

Purchasing a major media company like Sony Pictures or Viacom might be the solution to Apple's iPhone problem, according to Wedbush Securities analyst Daniel Ives.

"It comes down to video content. That is the golden opportunity for Apple ($APPL). The problem is ... they're spending $1 billion to $1.5 billion on content. Netflix ($NFLX) is spending $8 billion, Amazon ($AMZN) $4.5 billion, Disney-Fox ($DIS) spending another $12 billion. They are significantly behind, which is why they need to acquire some studios to potentially broader media assets ー like potentially a Viacom ($VIAB), CBS ($CBS) ー to put into the install base."

Ives views content as the key success driver of Apple's services unit. While the company faces slowing demand for the iPhone, Wall Street has relied on Apple's content business, which includes the app store and Apple Music. Services revenue reached an all-time high of $10 billion in the fourth quarter of fiscal 2018.

"It's a services-led story but you need the content, which is why in our opinion, the stock has struck midnight for Apple to make an acquisition," Ives added.

These are the media companies Ives predicts Apple might acquire:

High Probability: A24, Sony Pictures, and Lionsgate.

Medium Probability: Viacom, CBS, MGM Studios.

Low Probability: Disney, Netflix, gaming creator or platform on video game side.

Apple certainly has the financial firepower to orchestrate a deal for a media juggernaut. The iPhone maker has $237.1 billion in cash on hand, according to its latest earnings report. As of Monday's market close, Disney, Netflix, and Viacom's market valuations stand at just about $167 billion, $145 billion, and $12 billion, respectively.

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