In a research note, reported on by Business Insider, Citi analysts Jim Suva and Asiya Merchant said that Apple’s cash pile is set to increase after President Donald Trump successfully cut corporate tax and gave companies permission to repatriate cash stored overseas without taking a big hit. The analysts predicted that the iPhone maker has about $252 billion in cash in foreign jurisdictions and expects that extra capital to be used to buy back shares or make a big acquisition.
Suva and Merchant identified Netflix as the company Apple would be most interested in buying. The analysts predicted that Apple would only need a third of its cash sitting overseas to purchase the streaming giant.
Walt Disney Co. (DIS) was flagged as the second most likely target, although the movie studio has since acquired Twenty-First Century Fox Inc.'s (FOX) studio and TV assets. Other potential M&A targets flagged in the note were video game firms Activision-Blizzard Inc. (ATVI), Electronic Arts (EA) and Take-Two Interactive Software Inc. (TTWO), video streaming service Hulu and electronic car manufacturer Tesla Inc. (TSLA). (See also: Disney Is Poised to Break Out on Fox Deal.)
"The firm has too much cash — nearly $250 billion — growing at $50 billion a year,” Suva and Merchant wrote in the note. “This is a good problem to have. Historically, Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90 percent of its cash sitting overseas, a one-time 10 percent repatriation tax would give Apple $220 billion for M&A or buybacks."
Acquiring Netflix would represent a significant coup for Apple. The Cupertino, California-based company has excelled in music, but struggled to extend that dominance to the video content industry, leading many of its loyal customers to use Netflix, Amazon.com Inc. (AMZN) or Hulu to watch their favorite TV shows and stream movies. (See also: Apple Signs Deal With Spielberg in Content Push.)
Netflix could also benefit from joining forces with Apple. The Scotts Valley, California-based firm has emerged as a market leader partly because it spends billions each year acquiring and creating new content. Without a cash-rich partner, Netflix’s ability to continue investing significant capital in content might eventually disappear.