Should Apple Inc. Buy GoPro Inc.?
One of the things Apple Inc. (NASDAQ:AAPL) bears like to say is that the company lacks growth potential in its core business, despite the fact that “iPhone” sales have been skyrocketing quarter after quarter. Moreover, Apple has been expanding its product line-up, with the “Apple Watch” being the latest addition. Today, however, I would like to look at something else: Apple’s acquisition strategy, which could provide tremendous growth potential for the company and its stock price.
Apple: Fruitful Acquisitions
It sounds like a cliché to say that when you are rich enough, you can buy pretty much anything you want, but that’s the case for Apple. As of the beginning of December 2015, Apple has reportedly acquired 70 companies.
One of the main reasons for buying companies is to integrate them into Apple’s existing projects. For instance, by acquiring music software and hardware company Emagic and its software “Logic Pro” in 2002, Apple was able to create the now-popular digital audio workstation software “GarageBand.”
Following this same strategy, Apple has acquired many small companies that have either personnel or technologies that could fit into Apple’s projects. In its fiscal 2015 year alone, Apple “completed 15 acquisitions to enhance and accelerate [its] roadmap for products and services,” according to CEO Tim Cook. (Source: “Apple’s CEO Tim Cook on Q4 2015 Results – Earnings Call Transcript,” Seeking Alpha, October 27, 2015.)
Apple’s most high-profile acquisition was Beats Electronics. In August 2014, Apple spent $3.0 billion to acquire Beats and its subscription music streaming service “Beats Music.” Since Apple had always bought smaller companies and startups, buying Beats was a considerable change of course for the company. The previous high-profile acquisition was Apple spending $400 million to buy NeXT, which brought former CEO Steve Jobs back to the company.
Apple Buying GoPro, Inc. (GPRO)?
Most recently, the talk was on the possibility of Apple buying action camera maker GoPro, Inc. (NASDAQ:GPRO). On Thursday, December 10, FBR & Co. (NASDAQ:FBRC) analyst Dan Ives e-mailed MarketWatch, saying, “We believe GoPro would fit like a glove into the Apple product portfolio.” (Source: “GoPro Stock Surges on Talk Apple May Buy the Whole Company,” MarketWatch, December 10, 2015.)
Mind you, this is not the first time for such a recommendation. In September, Northland Capital analyst Gus Richard said that GoPro would make a “compelling acquisition target” for Apple. He believed that the acquisition would be interesting for Apple from “both a hardware, software and content perspective.” (Source: “GoPro’s Stock Rallies After Analyst Says Company Would be an ‘Interesting Acquisition’ for Apple,” MarketWatch, September 14, 2015.)
So, what is all the fuss about GoPro? Well, in case you haven’t noticed, the GPRO stock price has plunged big-time in recent months. Trading at $19.15 a share, GoPro has a price to earnings (P/E) multiple of just 15.66. Combining the low price tag with its fast-growing business, GoPro looks like tremendous value for the money. Moreover, other than GoPro’s success in the action camera business, the company is also deeply involved in virtual reality and drones. Therefore, if Apple were to enter these two fields, buying GoPro could be a good way to do it.
Right now, GoPro has a market capitalization of $2.6 billion. Does Apple have enough money to buy it? Well, by the end of its most recent quarter, Apple had a whopping $203 billion in cash equivalents. Therefore, money isn’t really an issue. But then again, it requires both parties to be willing to make the deal and at GPRO’s stock price today, GoPro’s CEO Nick Woodman might not agree to sell low.
The Bottom Line on AAPL Stock
As they have done in the past, acquisitions could provide tremendous growth potential for Apple. Therefore, for those who are concerned with Apple’s growth in its traditional business, keep in mind that potential acquisitions like GoPro might give a solid boost to AAPL’s stock price.