J.P. Morgan Advises Apple to Acquire Blizzard, Activision or Netflix

Apple had it ‘tough’ in the last six months or so. Huawei took second place from this American company as the largest smartphone vendor in the world. Also, the feud between China and USA didn’t help their iPhone sales. Namely, Wall Street believes that the informal boycott of iPhone and other Apple products in China is one of the reasons why the sales of this popular phone have flopped.

Apple’s star product, iPhone, has been the breadwinner for the company for a long time. It made up for the largest portion of the revenue each year and consumers were fast to exchange one-year-old devices for the newest ones. However, the Chinese boycott, rough competition and longer upgrade periods have taken their toll on the sales and Apple decided to focus on its second largest department which is dedicated to services.

Apple And Netflix

Based on the latest report on the earnings, Apple had quarterly revenue of $10.9 billion, which is a record one, for services like iTunes, Apple Music, Apple Pay, and others. That same report says that iPhone sales declined from $59.8 billion a year ago to $51.9 billion. This is why Apple intends to reach $50 billion in annual revenue for services by 2020 since this seems to be something more profitable and prudent for investment.

And in the light of all this, an analyst from J.P. Morgan Samik Chatterjee believes that Apple should turn to strategic acquisition like buying Netflix, Blizzard or Sonos. Although, J.P. Morgan is more inclined to Netflix since it seems to be a better fit strategically due to its work on original content which truly helped this media company stand out from the competition.

“We think Netflix is best strategic fit on a leading position in engagement level as well as original content, differentiating itself from pure aggregators of content,” said Chatterjee. “We believe there is value to acquiring the most successful player in this space, which is hard to replicate with a smaller player in this market.”

Apple to Acquire Blizzard or Activision

Currently, Apple has $250 billion in cash and cash equivalents which J.P. Morgan believes should be used to acquire a leading video streaming company like Netflix then a smaller name. But this isn’t the first time that Netflix was perceived as a good investment for Apple. Analysts have talked about Apple acquiring Netflix a year ago when they even predicted that this should happen in a few months. Now, when Netflix is being more and more successful in creating the original content and even get acknowledged as more than the household streaming service.

In 2014, The Square by Jehane Noujaim received an Oscar for Best Documentary Feature at 86th Academy Awards. This year, Alfonso Cuaron’s Roma has 10 nominations including for Best Picture, Best Director, Best Original Screenplay and Best Actress which are the top awards of the ceremony. Not to mention that this movie already won other awards preceding the U.S. Academy of Motion Picture Arts and Sciences’ ceremony. Also, Netflix movies have participated in film festivals like Toronto International Film Festival with Cannes excluded for now due to a clash between Cannes general director Thierry Fremaux and the streaming giant. Namely, after Thierry announced that the festival will not allow films which were not available in French theatres to compete, Netflix pulled its titles from the competition.

“We want our films to be on the fair ground with every other filmmaker,” said Netflix COO Ted Sarandos for Variety.

Ted Sarandos

But not only would Netflix be an attractive and lucrative buy for Apple, but it is also easier to acquire than other streaming services like Hulu or Amazon Prime, the latter being quite problematic because it belongs to Amazon. Also, as Apple already planned to start its own streaming service, J.P. Morgan believes it is more prudent and financially wise to buy an established player. Other name dropped by J.P. Morgan were Activision and Blizzard – both prominent game developers, Sonos which makes smart speakers, Tesla and Disney.  

However, while Chatterjee believes Netflix would be an excellent fit for Apple and its services, it is unlikely to happen. Netflix wouldn’t sell for less than $200 billion, even though its current value is estimated to $148 billion and with added net debt of $7 billion. This would take a considerable amount from Apple’s $250 billion cash reserve.

And while J.P. Morgan is giving their opinion on what Apple should do with its money, the company is launching its streaming service in spring this year. So, it seems that Apple knows what is best for its business without experts’ and analysts’ opinions on the matter.