What do slowing sales and a growing services business mean for Apple’s M&A appetite?
This week, Apple has once again commanded the attention of global media following its latest quarterly financial report. While the technology giant’s previous financial reports have typically generated headlines for its record-breaking sales, the latest financials have significantly fuelled the global M&A rumour mill.
Perhaps unsurprisingly, the biggest news to come out of Apple’s latest financial report is the substantial slowdown in sales of the company’s flagship product – the iPhone. In quarter ending March 2016 iPhone sales failed to grow for the first time since the product launched in 2007. In general, the company’s financial results were reported to be down, with quarterly revenue standing at $46.9bn, in comparison to $51.5bn in the same quarter in 2015, and a net income of $9bn, a $2.1bn fall from the same quarter last year.
It hasn’t all been disappointment for Apple, however, with record growth in the company’s booming services business. The success of Apple Pay, iTunes, the App Store and Apple’s streaming services helped the services business to grow by 24 per cent to an all-time record of $6.3bn. Within the financial results, Apple also reported that it ended the quarter with a hefty $237.6bn in cash, which included its investment portfolio.
While Apple’s financial results have been fairly mixed, the report has piqued the interest of M&A dealmakers, commentators and analysts, who anticipate that the company’s declining sales will lead to more content-based deals to bolster Apple’s growing services business. And with such a substantial cash pile to play with, CEO Tim Cook could target almost any company that Apple has its eye on for acquisition.
Commenting on deal prospects, Cook revealed that the company was “open to acquisitions of any size that are of strategic value” and that could “deliver better products to our customers and innovate more”. While critics would argue that Cook’s statement is the same rhetoric we have heard time and time before, it certainly highlights Apple’s continued appetite for both content and M&A.
Potential deals in the cards for Apple include the much-discussed acquisition of streaming service Netflix. As Apple expands its content pool, rather than launch its own streaming service it makes sense for the company to snap up the industry leader, further cementing its global dominance and bringing significant growth to its services business.
However, Apple faces stiff competition from Disney, who has also expressed interest in Netflix. Given that the Apple-Netflix deal rumours have been circulating for some time, it remains to be seen whether there is any truth behind the rumours. If Disney does make a move, however, cash-rich Apple would be in a prime position to start a bidding war, with experts commenting that the technology giant would likely come out on top.
Over the next year, Apple is set to strengthen its services business through its growth of content. Although its services revenue sits at just $6.3bn in comparison to the $28.2bn in revenue generated by the iPhone, services are on the rise while product sales gradually fall. Purchasing an established company such as Netflix would add a significant figure to the services business, and it’s clear that Apple sees the company’s future growth within this section of the business.
Stay tuned to our blog for M&A news and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.