- Apple might need a new growth story for investors to get excited about, and CEO Tim Cook hasn't closed the door on large acquisitions.
- Salesforce, Disney and Tesla are three options for Apple, according to a handful of Wall Street bankers.
- Still, it's unlikely Apple will do a large deal, they say, because it isn't in the company's DNA.
Apple has a growth problem. With no game-changing product on the horizon (that we know of), it might finally make sense for Apple to acquire a company that can give it renewed life and change its Wall Street narrative.
This would be highly unusual for Apple. More bluntly, it would be unprecedented. Apple ended the fourth-quarter with $237.1 billion in cash on hand and $130 billion in cash. Yet the company's largest acquisition ever was just $3 billion — its 2014 deal for Beats Electronics, the headphone-maker and streaming music company founded by rapper and producer Andre Young (Dr. Dre) and music executive Jimmy Iovine.
The company has lost more than $450 billion in market value since Oct. 3. Slowing demand for iPhones and worse-than-expected sales in China led the company to lower its revenue forecast for the first quarter by as much as $9 billion. Shares fell the most in six years yesterday.
Recently, CNBC asked a handful of Wall Street bankers if they thought Apple would finally make an acquisition of significance, given the company's recent woes. To a person, the answer was no. It's not in Apple's DNA, they said. There are too many cultural challenges with buying a large company for Apple, they said. Apple would get torched by the market for doing a big deal now after losing hundreds of billions in market value, they said.
But, some said it feels like Apple should buy something — even if it probably won't. CEO Tim Cook told CNBC's Josh Lipton on Wednesday that the door on a large acquisition wasn't entirely shut.
"We look at many, many companies including very large companies," Cook said. "We've elected so far not to do those because we haven't found one that we say, 'wow, that's a nice intersection with Apple.' But I'd never rule it out."
So what would make sense for Apple? Here are some ideas from bankers.
Apple isn't really in the enterprise software game. Buying Salesforce, known for its customer-relationship management cloud-based software, would change the narrative around Apple. The company would shift from being a consumer-focused hardware designer to a business-focused, software-as-a-service provider (as well as a consumer-focused hardware designer). That sounds a bit off-focus for Apple.
But maybe off-focus is what Apple wants if it needs to sell a growth story for investors. Salesforce sales jumped 26 percent from a year earlier in its most recent quarter. Annual revenue topped $10 billion as company sales have consistently grown more than 20 percent each year. Salesforce has a market capitalization of more than $100 billion. Apple's current market valuation is about $700 billion. A deal would be a huge bet even for one of the world's largest companies.
Apple sales are still growing — they were up 20 percent last quarter. But the downward revenue guidance could lead to diminished growth in 2019.
And Apple has recently entered some partnerships with enterprise companies, including Cisco and IBM. Apple has a history of partnering before moving on its own. It worked with Motorola in 2005 to release the Rokr E1, the first iTunes phone, before launching the iPhone in 2007.
Salesforce did flirt with selling to Microsoft back in 2015. But it was a much smaller company then, with a market capitalization of about $50 billion. It's unclear if Salesforce co-CEO Marc Benioff is still interested in selling, but any public company has to take an offer seriously.
Amazon, Google and Microsoft are all in the enterprise software business. Those companies do a lot of other things too. A departure from Apple's core competencies might be rewarded by the market instead of shunned.
Apple is going to launch a new digital video service this year, which will give its mobile device owners some free content and the right to buy subscriptions to existing media channels, similar to Amazon's Prime Video Channels, according to people familiar with the matter.
But if Apple truly wants a leg-up in original content, buying Disney would be the biggest move it could make.
Of course, Disney is trying to complete a $71 billion deal of its own (though that could be $30 billion less or more after selling its Sky stake to Comcast and divesting Fox's regional sports networks). And Disney already has an enterprise value of more than $180 billion. With a premium, that could make a deal the largest transaction of all time.
Still, the ties between Apple and Disney go way back. Apple co-founder Steve Jobs was on the Disney board for years and was CEO of Pixar until he sold it to Disney. Apple's concerns about having family-friendly content for its video service jive with Disney's brand.
If AT&T was willing to spend $104 billion, including debt, on Time Warner, would Apple spend well over $200 billion for Disney? Apple did investigate buying Time Warner back in 2016, according to a Wall Street Journal report. Maybe it's just been waiting for the right time to pounce on Disney. And at 67, Bob Iger can't stay CEO forever.
Then again, because of Apple's size, a deal for Disney could be a tough sell for regulators, even if the companies don't really compete. Antitrust lawyers are probably rooting for this option.
While buying Disney would push Apple toward being the world's largest media company, acquiring Tesla is a cleaner fit in terms of staying closer to the company's core competencies — making beautiful, user-friendly devices and operating efficiently with complicated supply chains.
Tesla followers are well aware of CEO Elon Musk's desire to be a private company. Selling to Apple would take the company out of the public markets.
Apple has reportedly been working on an electric car project for years. A car could be just the new "device" Apple needs to make its fans go wild. I'm sure they'd find it wonderful to fantasize a 5G world where a luxury Apple car talks to your other Apple devices in blissful harmony.
But would Musk be interested in running Tesla within Apple, when he's only the boss of a division? It's hard to imagine him giving up on the company.
Tesla revenue more than doubled from a year ago, and though the company has flirted with liquidity problems, Apple's operational expertise and huge cash reserves could theoretically help the company fight its biggest problems, keeping up the pace of production with demand.
Others have speculated about an Apple-Tesla deal before. Like Disney, Tesla's appeal would be jumping to the head-of-the-class through acquisition rather than building something from scratch. And Tesla would come cheaper than Salesforce and Disney, with a market valuation of just $54 billion.
So Apple could probably just buy Tesla with its net cash.
In other words, funding secured.