Disclosure: The author and American Dream Investing own shares in AAPL and DIS.
Citi analysts recently sent a note to clients saying there is a 40% chance that Apple AAPL +1.79% will buy Netflix NFLX +4.73%, according to Business Insider. This will no doubt garner headlines and will be discussed ad nauseam on the financial news networks.
The basis for the analyst’s argument is that Apple will have $252 billion in overseas cash available to repatriate, and they need to do something with it. It would be boring and obvious to tell their clients that Apple will stay the course and continue what they’ve been doing — making smaller acquisitions (like last month’s purchase of Shazam), increasing research & development spending and buying back shares and growing their dividends. It’s much splashier to say they’ll do something exciting like buy Netflix, Walt Disney DIS +3.99%, or Tesla TSLA +2.88%.
Where did Citi come up with their 40% estimate? Did they just pull it out of thin air? Apple is very secretive when it comes to their long-term plans, so this type of analyst note seems to be nothing more than mere speculation.
The Citi analysts have nothing to lose by making their prediction — if they’re wrong, they can claim they said there was a 60% chance of a deal not happening. If they’re right, they can hang their hat on it and say they were the ones who made the call that it would happen.
Apple has already committed $1 billion towards creating new shows and their largest acquisition was buying Beats for $3 billion in 2014. Why would they spend $75 billion to buy Netflix? It would be a desperation move that would raise a white flag and signal a major organizational shift in philosophy.