Former Apple (AAPL +1.04%) CEO John Sculley has recently joined the discussion about what the company should do with its abundant cash reserves. Sculley believes Apple should ignore Carl Icahn’s proposal for a $150 billion stock buyback and go for a big acquisition instead. Apple is not typically inclined to big acquisitions, but the size of its wallet could provide access to some really interesting possibilities.
iBay
Sculley specifically mentioned eBay (EBAY +2.37%) as potential alternative for Apple to consider. With a market capitalization near $69.1 billion, the online commerce company would be a big fish to swallow, but not out of reach for a giant whale like Apple with more than $146.7 billion in balance sheet cash and liquid investments.
A move like this one could provide Apple with a quick entry into promising growth areas like e-commerce and digital payments, and PayPal could represent a remarkable strategic asset for Apple. PayPal is becoming an increasingly bigger part of eBay’s business model, while MarketPlaces generated around $2 billion in revenue and a 12% growth rate in the last quarter, PayPal grew at a faster 19% to $1.6 billion for the quarter.
PayPal would combine particularly well with Apple’s new fingerprint sensor included in the iPhone 5s to consolidate a leadership position in digital payments. With 137 million active accounts – 17% annual growth in the last quarter – PayPal has already gone through the inflection point in gaining customer acceptance, and adding the support of Apple and its enormously valuable brand to the payments platform could do wonders for both companies in terms of growth possibilities
Streaming growth
Netflix (NFLX 2.52%) is firing on all cylinders lately, the stock has risen by more than 250% year-to-date thanks to booming subscriber growth and improved profitability. Still, with a market cap of $19.39 billion, the streaming company is an accessible target for Apple when it comes to money.
Netflix ended the third quarter with more than 40 million subscribers and $1.11 billion in revenue, a 22% increase versus the same quarter in the previous year. The company reported earnings per share of $0.52 for the quarter, comfortably above analysts’ estimates, so Netflix is offering to analysts and investors the kind of growth and excitement Apple is lacking lately.
An acquisition could generate some complications, but both companies have something the other one needs: Netflix could provide the top-line growth that investors are eagerly awaiting from Apple and its streaming service would integrate quite well with Apple TV and the recently renewed iPad line.
When it comes to Netflix, Reed Hastings and his team have a clear and aggressive strategy, building a huge library of content to attract subscribers first and focus on profits in the future. This can be an exciting but expensive strategy, and Apple’s deep pockets could provide a huge advantage for Netflix when it comes to content creation and acquisition.
The voice of reason
Nuance Communications (NUAN +0.00%) and Apple have various things in common. Nuance is responsible for the technology behind Apple´s Siri and other voice recognition services, and both companies have also been under pressure from Carl Icahn lately.
Nuance has many valuable patents and technologies with big potential in areas like consumer and health care among many others, but the company is facing slowing revenue growth, falling profit margins, and a considerable amount of debt in its balance sheet. Nuance has recently swallowed a "poison pill" aimed at keeping activist investor Carl Icahn at bay and protecting the company from his attempts to gain control over the business.
With a market value of $4.98 billion after falling more than 28% year-to-date, Nuance would only require pocket change from Apple. The Cupertino giant would gain control over important technologies with serious long-term potential in areas like wearable computers among others.
As for Nuance, Apple could provide valuable financial and technological resources for the company to continue investing and growing over time without having to worry much about its financial problems and activist investors like Icahn.
Bottom line
It’s hard to tell with a reasonable degree of certainty what kind of acquisitions Apple could be willing to make. However, playing with imaginary scenarios and considering different possibilities shows that the company’s cash hoard could have plenty of strategic value for investors if its put to work in the right places. Money means options and flexibility, and Apple has plenty of cash in the bank.
