Apple may acquire Netflix, suggest Citi analysts

Delia Watkins
January 3, 2018

There is a 40% chance that Apple will acquire Netflix, according to a new report from Citi. So how about we start 2018 with another potential mash-up that's got some analysts intrigued: might Apple offload billions in newly freed-up overseas cash to buy Netflix? This was based on his analysis of Apple's and Netflix's revenue, gross margin, operating expense ratio, other income and interest expense, tax rate and share count three years out from their last fiscal year. Thanks to the cut in corporate taxes as well as a one-time allowance for companies to bring back cash to the United States from overseas while attracting much lower taxes than before.

Apart from Netflix, the analysts say there is a smaller chance (10%) of Apple looking at acquiring video game companies such as Activision, Electronic Arts, and Take-Two.

Apple's answer to this crisis was to invest $1 billion dollars in original video content production, as reported by Wall Street Journal in August 2017. Netflix's stock price had a previous close at $191.96 on Friday. That comes from Business Insider, which points out that the tax breaks corporations are receiving make such a large deal more attractive for a company like Apple, which has a lot of money to work with. As such, tax reform may allow Apple to put this cash to use.

A Netflix acquisition would be a big win for Apple who has struggled for years to nab a successful TV or movie holding.

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In a December note sent to clients, Suva and Merchant marked Netflix as the company Apple was most likely to buy. "With over 90 per cent of its cash sitting overseas, a one-time 10 per cent repatriation tax would give Apple $220 billion for M&A or buybacks". Apple is also developing a new space opera from Battlestar Galactica's Ronald D. Moore. The company is also working on its first scripted series with Jennifer Aniston and Reese Witherspoon. And Apple's method of content delivery - while robust and market-defining within the iPhone and Mac ecosystems - doesn't align with the way viewers are now streaming Netflix and its competitors.

"Netflix is miles ahead in terms of programming hours, original content quality and time spent, and we don't expect this to change".

The other reason the analysts at Citi think Apple could target Netflix?

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