As Apple (AAPL) begins to successfully shift focus to its services story, an acquisition could be just the accelerant it needs.
Shares of the tech giant lost some steam into the end of the trading day Tuesday, sinking into the red by around 1.0% to close the day. A big splash of the M&A variety could be a savior in 2019 as the company continues to divert the narrative away from decelerating hardware sales.
With nearly $250 billion at its disposal for such moves, there are potentially a few areas and specific companies that could prove to be attractive targets for takeovers.
Scooping Up Streaming Content
One of the areas where Apple will be in need of a buildout is streaming and OTT content.
Analysts were largely disappointed by Apple's outlined efforts in streaming at its event Monday, noting that the company will largely act as an aggregator of subscription content rather than a true competitor to more established streaming platforms such as Netflix (NFLX) and Amazon (AMZN) .
While Apple was not shy in unveiling A-List celebrities for its premier event, the production of content could be a question that persists, unless the company can quickly shore up that hole with an acquisition.
Viacom
Viacom (VIAB) could be a possible leading candidate for consolidation.
Looking through CEO Tim Cook's presentation, Viacom titles abound on the unveiling of Apple TV segments. Comedy Central, Nickelodeon, and MTV, for example, all took prominent screen space.
Given the disappointment of investors with Apple-owned content, a buyout of of a big content creator could quell concerns quickly.
Viacom stock rose swiftly on Tuesday as rumors of a merger with CBS Corp. (CBS) hit newswires. While the move might increase the price tag for Viacom, it indicates that management is not entirely opposed to industry integration.
Also, Apple would be unlikely to lose any bidding war given its behemoth balance sheet, making a slight move in the $12 billion market cap of Viacom largely immaterial.
The only question would be the closeness of CBS and Viacom, which are both owned by the Redstone family through National Amusements. That closeness could close out Apple's chances to acquire Viacom out from underneath the Redstone clan.
Lionsgate
An even cheaper alternative to shore up content production could be a movie studio like Lions Gate Entertainment (LGF.A) .
Lions Gate, responsible for the Starz network for television programming as well as the movie studio behind hundred-million-dollar releases like The Hunger Games, the Twilight Saga, and La La Land commands a market cap of only just over $3 billion.
At that price, it would be a bargain for Apple to scoop up and instantly become a content player that could challenge Netflix. Many investors will note that Netflix has encountered difficulty financing its ambitious efforts in self-production.
Given Apple's cash position, it would have no issues in grabbing Lionsgate and accelerating its ability to produce blockbusters to easily outpace peers.
In this fashion, only the former fellow trillion-dollar market cap company Amazon could truly compete.
$APPL has bought back more in shares (with spare change) over the past 5 years than $NFLX could earn in overall sales in the next 15 years.
If Apple wants to kill Netflix, it need only flex a tiny portion of its considerable muscle.$NFLX is Blockbuster. It won't survive
— Martin Baccardax (@mdbaccardax) March 26, 2019
Consumers will generally go where the content is and Apple's balance sheet could make it content king if it so wishes.
Patching Up the Healthcare Push
Healthcare has been touted by Tim Cook as the true legacy of Apple in the long term. Coming from the company that revolutionized the telecommunications industry with the iPhone, that is a bold claim.
Cook made no mention of healthcare at the most recent conference, instead focusing on the more entertainment ambitions of the company.
That said, Cook may be correct in his outlook on the healthcare industry as it is an extremely profitable industry that lags behind in terms of digitization. In 2015 alone, $7.2 trillion was spent on healthcare globally, with the United States being one of the fastest accelerating regions.
"Apple has built a strong brand for its products, and has focused that brand around privacy (which is important as it enters the health space)," a CB Insights report states. "When Apple releases a new product, people are excited to use it and interact with the products on a daily basis because of it [and] legacy healthcare companies have to rebuild their brands."
That combination makes it a very attractive space for Apple to attack, but as of yet the Apple watch's heart monitor and emergency services applications are really the only major healthcare initiatives that the company has embarked upon.
A key acquisition could be an important next step to help investors get behind Cook's bullish outlook for the segment.
Cerner
Cerner Corporation (CERN) , a Kansas City-based healthcare technology firm, could be a highly complementary pickup for the Tim Cook-led tech giant.
The company, which specializes in digital health records, would fall directly in line with providing more information to both patients and physicians about their health. The understanding and availability of information related to one's healthcare could be a major technological advance in medicine.
Given that privately held Epic Systems, another logical choice for Apple to poach, is apparently not for sale, Cerner is one of the companies that would make sense for Apple to acquire.
Getting More in Gaming
The last area that Apple could potentially swoop into would be gaming, building up its Arcade platform quickly to compete with an industry eager to cash in on eSports.
"Unlike most of the games available currently on App Store, Apple is going to work with developers directly, including sharing development costs, to develop exclusive games for the platform," Cannacord Genuity analyst T. Michael Walkley explained. "The strategic rationale of a gaming subscription is strong, given an estimated ~1 billion gaming customers already on the App Store, as well as now owning services that can leverage growth in mobile gaming (stronger growth expected than gaming industry overall)."
Details of this subscription service were not disclosed, though its focus on mobile gaming is a shrewd one judging by statistics, with the market having more than doubled in size since 2013.
By 2022, there is expected to be over 700 million mobile gamers in the Chinese market alone, making it the most popular medium of gaming in that market. Apple's long-term prospects certainly look rosy if it can add a meaningful portion of this pie.
Activision Blizzard
With Alphabet (GOOGL) making its presence known in video games and gaming content, a big splash from Apple in gaming was unsurprising. However, its angle of attack was attention grabbing.
"Apple Arcade is the world's first game subscription service for mobile, desktop and living room," Ann Thai, manager for Apple's app store said. "We're not just curating them, we're backing their development, and our team is working closely with developers to bring these games to life."
The undisputed king of games across platforms at the moment would have to be Activision Blizzard (ATVI) .
While Activision has undoubtedly made its bones on PC and console gaming with titles like World of Warcraft and Call of Duty that would play into the hands of Mac and console offerings from Apple, its acquisition of King in 2015 also brought it the best-selling mobile game of all time.
The synergies across these businesses could make Activision an interesting target for the colossus of Cupertino, especially as Activision reportedly shutters certain King studios locations, lays off employees, and spins off development houses.
However, a nearly $40 billion price tag, while not overly material for Apple's balance sheet, would be uncharacteristic.
Apple has not made an acquisition of over $1 billion since 2014, when the company bought out Beats headphones for $3 billion. In fact, that is the company's only ever multi-billion-dollar buyout.
Take-Two Interactive
Given Apple's more frugal history, a company like Take-Two Interactive Software (TTWO) , which has created some of the best-selling games ever through its 2K franchises as well as its Rockstar Studios-driven Grand Theft Auto and Red Dead Redemption releases could make a highly palatable target.
The company currently commands a market value around $11 billion, which would potentially necessitate a less than 5% chunk of Apple's considerable reserves. It would mark Apple's biggest acquisition, but in context it would sting the balance sheet very little and add quite a bit of value.
(Apple, Viacom, Alphabet, and Amazon are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.)
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