Speculation Mounts About Apple Making an Acquisition

Speculation has increased that Apple (AAPL) could be in the market to make an acquisition after Needham proposed last week that Apple could be in the market to acquire Walt Disney.  Needham said Apple could see a “material upside” of 25% if it purchased Disney, citing Apple’s distribution capabilities and Disney’s content. 

Over the years, many companies, including Netflix and Tesla, have been listed as potential acquisition targets for Apple.  However, speculators have been disappointed as Apple has refrained from making huge acquisitions.  Jensen Investment Management said despite Apple’s cash-rich balance sheet, “it’s a low-probability bet” that Apple makes a high-profile acquisition.

In contrast with its peers, Apple favors buying small startups to augment its home-grown forays into new markets, even if those efforts take years to develop.  Apple’s biggest purchase in its history was the $3 billion takeover of Beats Music and Beats Electronics in 2014.  Conversely, Microsoft’s pending acquisition of Activision Blizzard is valued at $69 billion.

Apple rallied to a 7-month high Tuesday and is up more than +32% since it posted a 1-3/4 year in January, outperforming its mega-cap peers for the second consecutive year.  Over the past twenty years, Apple has averaged an annual return of 39%, including dividends.  By comparison, the S&P 500 ($SPX) (SPY) has averaged a 10% return during that same time frame.  Apple’s strong performance makes it unlikely that it will pursue a major acquisition in the near term. 

Instead of seeking acquisitions, Apple returns much of its excess revenue to shareholders via buybacks and dividends.  Those expenditures totaled more than $100 billion in fiscal 2022, and it still had $165 billion in cash equivalents and marketable securities as of December 31. In fiscal 2022, Apple spent $306 million on business acquisitions, down from $1.5 billion in 2020.  Edward Jones said Apple has been so successful by making smaller, incremental acquisitions that making a huge deal would raise many concerns.

It’s Time To Throw In The Towel For Bed Bath & Beyond (BBBY)

Staying Ahead Of The Curve In The Upcoming Earnings Season

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.