Here are three telltale signs of a new year: A spike in weight-loss ads, people writing the wrong year on checks, and rumors that Apple (AAPL 1.10%) is about to make an offer for Netflix (NFLX +0.16%). This time around, the "Appflix" buzz came courtesy of Daniel Ives, head of tech research at GBH. He argues that Apple is likely to take advantage of the repatriation tax break to bring home about $200 billion it has been holding overseas, and with that extra cash burning a hole in the tech giant's pocket, it may decide to pay up for Netflix.
The rationalizations change; the concept doesn't. Early last year, it was CNBC's Anita Balakrishnan trying to hook up the two market darlings, on the theory that App Store spending on entertainment was soaring, and Apple could beef up its services revenue by nabbing the leader in premium video streaming. It didn't make sense then. It doesn't make sense now.
Image source: Netflix.
Not the Netflix
In an ideal world, Netflix would look smashing on Apple's arm. Apple's a distant second in premium music streaming, but with that acquisition, it would vault to the top of the video niche worldwide.
There would be some conflicts of interest, especially since so many other video platforms rely on Apple as a gateway to reaching the affluent and broadband-blessed iOS crowd. If Apple bought Netflix, it would rattle many developers. It could also create some issues if consumer perception is that Netflix might not remain operating system-agnostic.
However, the biggest roadblock is that Apple isn't likely to buy anything the size of Netflix. Apple has never spent more than $3 billion on a single acquisition, and right now, Netflix commands an enterprise value of $92 billion. It would cost a lot more than that to get a deal done. A modest 20% to 30% premium would be seen as a reasonable markup if Netflix was out of favor, but it's not. Netflix is the S&P 500's biggest gainer over the past five years, including a 55% surge in 2017. Knowing that regulators would take their time on a deal of this magnitude, do you really think a majority of Netflix shareholders would sign off on anything less than a 60% to 70% premium?
If any company on the planet could afford to buy Netflix, it's Apple -- especially if it repatriates its overseas profits. The rub is that it's not in Apple's DNA to spend big bucks. Adding Netflix would also be highly dilutive to Apple's earnings per share, and wouldn't really move the needle for it financially.
The ship has sailed on a Netflix acquistion. The last legitimate window for a buyer to swoop in was during the Qwikster fiasco in 2011 -- the last time Netflix was cheap and vulnerable. The only reason we keep seeing Apple buyout rumors circulate every year is that the behemoth is pretty much the only company left that could afford to buy Netflix in an all-cash deal.
Let it go, Wall Street. The next Netflix buyout rumor should be about what the streaming video service might be buying -- and that list, quite frankly, is endless.
