There are going to be a lot of buyouts at the other end of this COVID-19 coronavirus pandemic. Cash-rich companies are going to feast on the broken, picking up important puzzle pieces that are licking their wounds with bruised egos.
No one is as flush with cash as Apple (NASDAQ:AAPL). The tech giant is armed with $107.2 billion in cash and short-term marketable securities. It has nearly $100 billion more in long-term marketable securities. It's going to have the pick of the litter when it's time to go shopping for strays later this year. A logical buyout candidate is Disney (NYSE:DIS), and earlier this week, Rosenblatt analyst Bernie McTernan became the latest Wall street pro to float that notion.
With Disney stock hitting a five-year low on Wednesday, it's easy to see why Apple buying the media giant while it's out of favor makes sense. Both companies have globally admired brands, rich ecosystems, and the ability to get away with premium-priced products and services. Disney's popular CEO just stepped down, making this as good a time as any to make a move. Apple buying Disney is a nice thought, but let's go over some of the reasons the pairing isn't going to happen.
1. Apple can get more bang for its buck elsewhere
Apple's ecosystem is a thing of beauty. Folks buying an iPhone or an iPad are thrust into the iOS platform. Before long, they find themselves paying for iCloud storage, buying the world's leading smartwatch, and shackling themselves to years of App Store servitude.
Disney's ecosystem takes a different path into your pocket, but it's essentially about optimizing the value of a hit franchise. All it takes is a blockbuster at the multiplex, a hit TV show, or even a popular theme park ride, and Disney can quickly monetize that success across its different segments.
Apple and Disney would look good in each other's arms, but is it worth it? Disney won't go cheap. It commands an enterprise value of roughly $220 billion now, but investors aren't going to cash out for anything less than $300 billion. At its peak just four months ago, Disney was commanding $335 billion in enterprise value. Apple would naturally offer a cash-and-stock deal, but that money could go toward buying a dozen tech and tech-services providers that would slide into Apple's existing ecosystem more easily.
2. Playing favorites isn't a good look
Disney brings an unmatched content catalog to the table. Marvel, Lucasfilm, Pixar, and recently acquired Fox assets (to say nothing about Disney's own iconic properties) helped make Disney+ an overnight sensation with nearly 30 million subscribers within its first three months of availability.
Content is king, but there's a reason the queen is the chess piece with the power to go anywhere she wants. Apple's success with media distribution platforms from iTunes to App Store stems from the fact that it doesn't play favorites among content creators and developers. It's the queen on the chess board. Does it really want to be the king?
3. Premium products aren't the same as premium services
Apple's ascent north of a trillion-dollar market cap has come as investors redefine the tech giant. It has always sold hardware at a decent markup relative to its competition, but the real driver these days is the promise of higher-margin services revenue.
Disney is the Apple of theme parks, movie studios, cruise lines, timeshares, and perhaps even media networks. What does this do to widen Apple's services revenue? It's not going to upsell Disney World visitors into trading in their MagicBands for Apple Watch devices. It's not going to get ESPN viewers to pay for cloud storage of games.
Apple has spent the past decade cranking out a net margin above 20%. Is it really going to slum it in the low teens with Disney?
Disney is great. Apple is great. They're blue chip stocks, and they're going to stay great on their own.