What is Apple Going to Do with All That Cash?
In 1977, Steve Jobs and Steve Wozniak incorporated a little start-up company called Apple Computer. For the first 25 years of Apple’s existence, they were simply a personal computer company, one which plugged in millions of Americans across the country.
For the last 15 years, however, Apple has been everything else. They’ve been music players, phone creators, watch makers, etc., and the success of the company has exploded to the tune of a $718B current market evaluation.
Strangely though, Apple has always (even now) hoarded cash. The most recent quarterly report shows Apple (APPL) sitting on a whopping $245 billion in cash. To put this into perspective, only one other US corporation has over $100 billion in cash, and that’s Microsoft — at just under $105 billion.
This means that Apple has more than double the amount of cash on hand than any other company in the United States, and this really isn’t new for them either. For the last decade, Apple has led the US in cash hoarding, slowly and steadily increasing their cash reserves year over year by about 10 percent. For a company to have a third of its value come from cash is not uncommon. What is uncommon, though, is for a company to have $245 billion on hand, with no apparent plan or desire to spend it.
Apple is currently the highest-valued company on the NYSE. In fact, the amount of cash they have on-hand could buy all but about 15 current corporations. So, will Apple ever actually decide to buy a few companies, and expand itself beyond the tech industry? Let’s play around a bit.
Three Possible Landing Spots for Apple Cash
NETFLIX – Years ago, when Netflix made its entrance, its stock could be had for under $3 a share. Today, it’s a company valued at $61 billion, which does a whole lot more than deliver DVDs through the mail. House of Cards, Orange is the New Black, and The Crown are just some of the original programming Netflix is offering up today, and Netflix recently signed a music publishing deal with BMG Rights Management. Emmy awards be damned, Netflix is coming after the Grammys!
So, how does Apple fit in? Well, there might be a way for Apple to use its technology to enhance the current Netflix portfolio, in terms of streaming or making it more accessible on the iPhone or Apple Watch. The most likely reasoning for Apple to acquire Netflix, though, is simply expansion. Just as Apple was tired of building computers only 15 years ago, they may have grown tired of building just computers, watches, and phones now. Perhaps they are looking to increase the breadth of the company. With Amazon attempting to do a little of everything these days, Apple could consider something similar.
TESLA – Shhhh, don’t tell anyone but Apple has likely been working on an electric car for a while now. Rumor has it that a few years ago, Apple purchased a lot of property in Sunnyvale California under the shell company name “SixtyEight Research.” Under the name “Project Titan,” Apple appears to be developing software for autonomous vehicles, and the hope is to have a release date somewhere around 2021. If, however, things take a turn for the worst and Apple is not able to develop the software or the car they desire, I think a company like Tesla is a terrific fit for the Apple portfolio.
Not only is Tesla an automaker, but it’s also an energy company with the acquisition of Solar City. Imagine a day where you drive home in your Apple car, enter your home using a code on your Apple security system, and then power your entire house with a single, solar cell battery. That’s the vision of Elon Musk (without the Apple part right now)… and if Tesla can deliver on their promise of an affordable T3, I truly believe the company will be Apple’s number one target for years.
TWITTER – Twitter is in a tailspin. Quarter after quarter, the company continues to lose hundreds of millions of dollars with no end in sight. For a website and a business that draws some of the most online traffic, it’s becoming more of a Shakespearean tragedy than a solid business model. CEO Jack Dorsey appears to have only one viable method for making Twitter profitable for investors: a sale.
Is there a way for Apple to swoop in and make Twitter a successful company? Maybe. And it’s clear that the constant talk of a Twitter sale is doing the company no favors; in the last three years, the company has gone from a $43 billion evaluation to just $11 billion. So, Apple may want to wait another few quarters to try to buy Twitter at an even lower price tag.
Working online for 10 years myself, I can only imagine the kind of revenue and potential a site would have when it drives millions of visits a day. I believe Apple is the kind of innovative company that could make Twitter a winner.
What the Future Holds
It’s somewhat concerning to me that a company of Apple’s size and magnitude is hoarding as much cash as they are. We’ve gone from the original iPhone to the soon-to-be-released, $1,000 iPhone 8, and there hasn’t been as much innovation as you’d expect from the most valuable US company in existence. Sure, the new iPhone might have a curved screen and will ditch their proprietary lightning port in favor of a standard USB charger (why, I have no idea), but it’s still just a phone. It would be nice to see them go bigger and better on other technological advances and the acquisition of one of the three above companies could do the trick.
Besides, if Apple buys a company like Twitter and it still bleeds money, Apple will “only” be left with $230 billion. I think they’ll manage.