Why Apple never goes big
Buy out Netflix? EA? Never.
By Evan Niu
It's no secret: Apple (AAPL) is loaded.
Over the years, it has been steadily growing its cash hoard, and inevitably the discussion leads to the same question: What should Cupertino do with its mountain of money? The two most popular suggestions are always a dividend and ginormous acquisitions. The Mac maker now has $81.6 billion in cash and investments sitting on the balance sheet, and that doesn't include long-term marketable securities of $55.6 billion, which are generally included in Apple's cash-equivalent figures.
You have to remember that as astounding as its coffers are, $54.3 billion, or two-thirds of the total, is sitting overseas, in part because of repatriation taxes. That leaves about $27.3 billion here stateside.
What about a dividend?
When it comes to a dividend, let's say the company wanted to start paying one -- and it could under CEO Tim Cook. Other dividend-paying tech giants such as Microsoft and Intel pay dividends yielding around 3%.
With shares hovering around $400, even a more modest 2% yield comes out to $8 per share annually. There are just under 916 million shares outstanding, which would bring the total annual dividend bill to about $7.3 billion for the year. That's using more than a quarter of the cash Apple has domestically to work with. As a shareholder, I prefer the status quo.
What about acquisitions?
Just because Apple has a full magazine of potential elephant ammo loaded into its gun, that doesn't mean it should trigger-happily start unloading at anything that moves and looks remotely appetizing. Instead of using a shotgun or bazooka approach, Apple prefers to use a sniper rifle: uncovering smaller targets from afar and selectively picking them off with focused precision when the time is right, efficiently saving rounds for future battles.
Its largest acquisition to date was just this month, when it acquired Israeli flash-memory specialist Anobit for an estimated $500 million. A Netflix acquisition would top $5 billion, more than 10 times its biggest buy. EA would probably cost at least $8 billion.
The rumor mill has even targeted Sony (SNE), which has a $17.6 billion market cap. Don't even get me started on the Disney (DIS) idea, since the iconic animator's market cap is $66.4 billion. That capitalization is already more than 130times the Anobit acquisition, before you even include any type of premium.
The hit list
Look at the companies Apple has acquired, and you'll immediately see why big household names never fit the bill. Here are some acquisitions over the years and their estimated prices.
Steve Jobs, Mac OS X
A4, A5 processors
iCloud, iTunes Match
A4, A5 processors
This isn't a comprehensive list, but it shows some of the more important buys. Notice the absence of the word "billion" anywhere. Before acquiring Quattro, Apple was in a bidding war with Google (GOOG) over AdMob, which Big G ended up winning for $750 million.
Steve Jobs had always favored small acquisitions of companies with solid technology that would allow Apple to build an offering from the ground up, as opposed to making a huge purchase of an established company that would be harder to integrate into Apple's culture. That's unlikely to change under Cook.
Keeping its acquisitions small is what allows Apple to have such a low intangible-assets ratio. Out of its current $116.4 billion in assets, only $896 million is goodwill and $3.5 billion is acquired intangible assets. That reduces the risk of having to eat goodwill impairments and other accounting charges if things don't turn out well -- just ask Hewlett-Packard (HPQ) how much Palm hurt.
Acquisition speculation: the new baseball
If Apple wants to get into video streaming -- which it probably does in preparation for a real Apple TV -- it wouldn't buy Netflix. It would buy some small streaming shop you've never heard of that has a good technological foundation and could be easily integrated.
The same would be true if it wanted to get into mobile-game development and EA, but it doesn't. Cupertino recently pulled its only iOS game, Texas Hold 'em, from the App Store. Why take the risk within one of the most competitive platform environments when it can sit back and just collect its 30% cut?
Next time you hear some bizarre far-fetched rumor that Apple is thinking of buying some major brand name for billions of dollars, feel free to brush it aside. The stories are bound to come up periodically, since acquisition speculation in the stock market is becoming a national pastime. Just remember that pastimes are for recreational purposes only.
Fool contributorEvan Niuowns shares of Walt Disney and Apple, but he holds no other position in any company mentioned. The Motley Fool owns shares of Apple, Microsoft, Intel, and Google and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Netflix, Walt Disney, Intel, Apple, Google, and Microsoft and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Doubtful. Apple TV is hardware, not content.
It always makes me laugh when some expert recommends buying a stock that they do not own and have no intentions of buying anytime soon.
If its not good enough for you then its not good enough for me.
My dream is to invent something, build it in the USA, hire Americans and put greedy so called American company's like Apple out of business. Is there any American businessman except for the Wiffle Ball Bat Company and New Balance shoe company willing to show some pride. When are Americans going to take a stance and start caring about where its's made. When are we going to realize that its not the Democarats or Republicans fault for the economy. No company wants to hire Americans. The only rule for a good invention is greed.
Nike is worse than Apple. 1.4Billion in Athletic endorcements and no US jobs. If Tiger Woods took only half of it 36Million is gets from Nike. They could easily build a factory and hire Americans with 18Million. But until we stop drinking the Asian Kool Aid we will continue to be Lemmings.
I prefer the status quo?
What happens when the stock tanks or is shorted by hedge funds and drops to $200?
Supposing the author had three thousand shares? Two percent would mean $24,000.Is this chump change? How many institutions have over three thousand shares? How many would enjoy some injection of cash during this gloomy season?
How about taking a few bucks and fixing your stupid iTunes store website so I can get it to open and maybe enjoy buying something...if not I'm sure I could always just find some free music somewhere and forget about itunes...just saying fix it or I delete it from my computer.
You have two days and I'm over you apple asshat's.
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.