The latest round in "Let's Spend Apple's Money" comes from a Wednesday night Vanity Fair column, arguing that the tech giant should buy Snap Inc. (NYSE:SNAP). The case for Apple (NASDAQ:AAPL) buying Snapchat's parent company isn't outrageous. Snap is still a major player in social media where Apple has stumbled before. Snap is also at the forefront of augmented reality, a priority at Apple. Apple is also loaded, something that comes in handy in this never-ending game of financial journos trying to separate the class act of Cupertino from its 12-figure bank balance.
Tech columnist Nick Bilton is no hack. He's a well-regarded author with several best-selling books, a popular podcast, and an enviable list of columns. However, he may be aiming too high here. It's hard to fathom Apple cutting a check for Snap.
1. Apple doesn't like big deals and it cannot lie
Snap commands an enterprise value north of $20 billion, but the costliest acquisition that Apple has completed in its long history was the roughly $3 billion it paid for Beats Electronics four years ago. Apple isn't afraid to go shopping -- it has bought dozens of companies. It just prefers to make smaller deals.
Apple is good for the money, and kinder tax repatriation laws will make it easier to tap into its massive vault. The problem is that Apple prefers to bunt rather than swing for the fences with its gobs of cash.
2. Snapchat is not a premium offering
The deal for Beats Electronics made sense. Apple would get the popular line of high-end headphones that it can sell to its affluent iOS users who don't flinch at a $350 pair of headphones. The Beats Music end of the business it acquired helped set the stage for Apple Music, which currently trails only Spotify in the premium on-demand market.
Snapchat isn't a haven for big spenders. The social sharing hub is free, and monetizing that traffic has been challenging. Snap's lone foray into hardware is its line of Spectacles wearable camera glasses, and the $130 specs have largely flopped.
3. Snap might still not have hit rock bottom
It would make sense for a company to buy Snap now if said company thinks the stock will be worth a lot more down the line. But it's hard to rally behind that notion. Snapchat's coming off of a blowout quarter, sure, but the stock has fallen after three of its first four financial reports as a public company.
Snap has also been taking some heat in recent months for a site redesign that many people in Snapchat's core audience are not happy with. The redesign was even dissed by an influential young celebrity. Snap's also reportedly in the process of laying off dozens of engineers -- a move that may rattle morale.
Snapchat is getting some things right. Revenue growth accelerated to 72% in its latest quarter, and the 8.9 million daily active users increase is Snap's biggest gain since going public. However, with losses continuing to mount -- another way of saying that the purchase would be dilutive to a potential buyer -- one can argue that a buyer can wait and get Snap when the stock is cheaper if it really wants to inherit the good, bad, and ugly of Snapchat. Apple has to have other things on its mind.