What Apple’s Cash Reserves Could Buy
Blimey! Apple Inc. (NASDAQ:AAPL) is once again under fire! Even after reporting another stellar quarter of earnings, AAPL stock tanked close to year-lows for guiding lower-than-expected future “iPhone” sales. But wait—there remains one thing that can save AAPL stock from this mayhem.
The naysayers are out again with their old rhetoric—the iPhone is dying, Tim Cook must leave, Apple lacks innovation, yada, yada, yada!
But guess what? Yesterday, it was Apple; today, it’s Samsung! Yes, the biggest smartphone vendor in the world and iPhone’s biggest threat, Samsung, reported its smartphone numbers following Apple’s call and it, too, is facing slowing sales. (Source: “Samsung Profit Misses Estimates on Smartphone Slump, Chip Prices,” Bloomberg, January 27, 2016.)
Clearly, this is an industry-wide trend. The smartphone is leaving the growth phase of its lifecycle now and entering maturity. So iPhone’s slowing sales growth was a foregone conclusion. Anyone who expected otherwise was only catching at straws.
But while the delusional shorts are fixated on the iPhone numbers, investors must take note of another eye-popping number that will change their bearish stance on Apple.
As of the end of this quarter, Apple holds a whopping $216 billion in its war chest of cash—that’s enough for Tim Cook to buy every American a new iPhone and still stay in business! Apple’s cash reserves are also hefty enough for Cook to acquire or launch any new product line that he sets his eyes on, forever silencing the naysayers on their “lack of innovation” tirade.
But if he can’t think of one, here are five great avenues where Apple’s cash use could benefit AAPL stock.
1. Buy This Entertainment Channel and Studio
In a bid to create an ecosystem of Apple-branded products and services, Apple has forayed into many new services that complement its products, including “Apple Pay” and “Apple Music.”
Along the same lines, imagine if “Apple TV” started streaming original Apple content. After all, two similar tech giants have moved beyond their core business to do it. Why not Apple?
Amazon.com, Inc. and Google (via YouTube) have entered the lucrative on-demand TV streaming industry, following in the footsteps of Netflix, Inc. (Source: “YouTube in talks with studios over streaming rights for shows, movies: WSJ,” Reuters, December 2, 2015.)
Likewise, it is not unlikely for a technology company to own a media house. Take, for instance, Sony Pictures Entertainment, Inc. In fact, all big tech firms will ultimately follow Netflix into producing original entertainment content. Not me, but Kevin Spacey of Netflix original House of Cards fame is predicting this. (Source: “At Davos, Kevin Spacey Predicts That Tech Firms Will Follow Netflix Into Media,” TechCrunch, January 21, 2016.)
Licensed content and ultimately original content could be a profitable venture for Apple to make some solid bucks in the entertainment industry. Using only half of Apple’s cash reserves, the company could easily buy both a studio—Twenty-First Century Fox Inc (NASDAQ:FOX)—and an entertainment channel—Time Warner Cable Inc (NASDAQ:TWC)—at their current market caps.