Apple's $59.7 Billion Question

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Apple (Nasdaq: AAPL  ) has an Ebenezer Scrooge complex.

Coming off yet another blowout quarter, one of the more frustrating yet exciting gems can be found on the iEverything giant's balance sheet. Apple closed out its fiscal first quarter with $27 billion in cash and short-term investments and another $32.7 billion in long-term marketable securities.

How can $59.7 billion be frustrating?

Well, Apple has no intention of letting its shareholders anywhere near that expanding pinata in the form of quarterly dividends. There also doesn't appear to be a pressing need to break into an aggressive share repurchase, especially if its inner ego won't be placated until it passes ExxonMobil to become the country's most valuable company by market cap.

Given its healthy prospects and the short upgrade cycles for its iOS gadgetry, there's little reason to believe that it won't continue to rain greenbacks in Cupertino.

This brings us to acquisitions. Apple has the financial flexibility to go on the mother of all shopping sprees. It also may want to pursue some meaty buyouts to help investors set aside concerns about Steve Jobs' renewed medical leave of absence.

Apple isn't afraid to go shopping. It just prefers to do so in small grabs at the convenience store. Whether it's music streaming website or mobile advertising specialist Quattro, Apple prefers to order bite-sized tapas.

Isn't it time for buyouts that will actually move the needle?

Let's go over three of the public companies that I think would make sense for Apple.

  • Netflix (Nasdaq: NFLX  ) -- No company has come close to taking on Netflix in digital streaming, which now accounts for more than half of the celluloid consumed by its 16.9 million subscribers. Apple's piecemeal rentals of new releases dovetail nicely with Netflix's more popular smorgasbord approach.
  • TiVo (Nasdaq: TIVO  ) -- The third time may be the charm for Apple TV, but the better play would be to own a patent-rich pioneer in home theater gadgetry. It's not just a matter of the easy renaming of Apple TV to Apple TiVo, nor the catch-all logic of an Apple TV DVR. TiVo is a company that has never been able to financially live up to the potential of its cool products, while making cool products pay off is Apple's strong suit.
  • Yahoo! (Nasdaq: YHOO  ) -- Apple isn't usually considered a conventional dot-com, though Yahoo!'s forte in display advertising and its gargantuan consumer reach can come in handy for Apple as it fleshes out its own mobile advertising platform.

I realize these deals are unlikely to happen, but Apple needs to begin putting its market-leading cash reserves to work. One visit from the ghost of Christmas Future should be enough to loosen Scrooge's purse strings.

Who do you think Apple should acquire? Share your thoughts in the comment box below. and Netflix are Motley Fool Stock Advisor picks. Yahoo! is a Motley Fool Global Gains recommendation. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz always bets the over when it comes to Apple. He does not own shares in any of the stocks in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it knows better than to talk down to Apple.

Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

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  • Report this Comment On January 20, 2011, at 2:41 PM, drrayham wrote:

    why would anyone want to buy Netflix at its inflated price when you could start your own or buy the company they get movies from. makes no sense. same for rest of companies--Apple will do it itself intime and do it right.

  • Report this Comment On January 20, 2011, at 2:47 PM, narniabastard wrote:

    What crack do you smoke? Because you need to share.

    Yahoo is a tu rd circling a toilet waiting for that final moment when they disappear. Have you actually used Yahoo's stuff? It sucks. It's not even close to the "user experience" Apple strives for. I'm not saying everything Apple makes is gold, but Yahoo's only business is online and they fail.

    Tivo same Apple doesn't want a DVR. They are doing "cloud" storage for their media.

    Netflix, well they would only be useful for getting the licensing but they won't get into the DVD mailing business and well Netflix's use of Silver Light would cause Apple to do a whole rewrite of the backend. Not going to happen.

  • Report this Comment On January 20, 2011, at 3:34 PM, Superstef wrote:

    Apple's key problem surely is supply: it simply can't make enough of the iPhone and iPad right now to meet demand, and probably this will be true for many of the Mac models in the medium term. It's a nice problem to have, of course, but Apple has earned its position through consistently delivering excellence. Almost every dollar that goes through Apple's tills is spent by an individual consumer making an individual decision. So long as the product experience after the purchase remains at a high level of satisfaction, it can only lead to even more sales in the future, which will only add to the supply problem.

    Shortages of components such as flash memory and high density screens are obvious. A good use of cash might therefore be to tie up supply from the premium component suppliers for the longterm through prepayment contracts, just as it has been doing for a few years now, but on a much larger scale. This would enable it to meet demand, keep quality at a very high level and would, of course, make problems for competitors. That would surely be a very good use of its cash.

    Apple used to assemble its own computers over in Fremont. I well remember going round the factories there. Maybe it's time to bring assembly back from China to America? This would take a lot of capital, but it may be of key strategic value in the future. It's something more American companies should be trying to do if we are to avoid an economy where everything we consume is made offshore.

    The idea of buying outfits like Netflix is just silly. Netflix has nothing on the streaming front Apple can't build in a New York second, and I hardly think a longterm thinker like Apple would want to get tied up with Netflix's undoubtedly excellent physical distribution system, because this is just sitting there waiting for streaming to marginalize it or even kill it off. It's old technology.

    The key to streaming, of course, is licensing the content and it looks right now that most of the studios are adopting their traditional head-in-the-sand attitude and trying to kid Netflix there's a market for streaming content at a higher price than for physical DVDs. Without content Netflix doesn't have a steaming business. Apple would be plain foolish to get into this argument. Much better to wait till the market screws the studios and they come to their senses. That will be the time Apple strikes.

    I assume the idea of buying Yahoo is a joke? Apple makes insanely great products. What has Yahoo got that helps this cause? What does Yahoo offer anyway? Advertising? Apple doesn't need advertising revenue. It doesn't need a portal to increase its visibility. It can't make enough of what it's got, remember?

    Apple has an absolutely key attribute, one that few large companies keep as they grow big, and that is focus. Whatever Apple does with its cash it will be aligned with its tight focus.

    My personal wild card idea would be an investment by Apple in rolling out its own high tech XG (forget 4G or 5G.. go for XG) network to displace the cell carriers. Can you imagine what the customer experience would be using iPhones and iPads on an XG iNetwork? If Apple did this, it would do it right. But man, that would take a LOT of capital and a LOT of balls.

  • Report this Comment On January 20, 2011, at 4:27 PM, Mstinterestinman wrote:

    I think Netflix is the only Viable possibility but not at this price unless The stock get crushed to like 60 and Apple offer a 100 not happening in the near future.

  • Report this Comment On January 21, 2011, at 2:08 AM, lowmaple wrote:

    Unfortunately bringing assembly back to high priced America would not help

    apple's bottom line and many of it's products will be sold in Asia in the future.

  • Report this Comment On January 24, 2011, at 3:14 PM, cfrdog wrote:

    TIVO is the one that makes the most sense. NFLX too pricey and APPLE can figure out streaming on their own. TIVO would make for a total entertainment hub. Yes, you still want a DVR but you also want streaming, you want a total package hub - hard drive, streaming, internet, music, movies, etc. TIVO is the play here - easy to swallow the acq cost and the smart move. Apple TV still isn't a run away winner, add TIVO to that and its an instant # 1.

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