Apple to Buy Netflix: Will Investors Take it Positively?

Likelihood of Apple to buy Netflix (NASDAQ: NFLX ) has increased among Citi analyst. Now, Analysts are 40% confident of Netflix acquisition by Apple. But will Apple buy Netflix is a big question?

Now, The US President’s corporate tax cut has been passed and given companies a onetime allowance to repatriate cash stored oversees without a major tax hit.  Apple wants to get benefited from this by using its $252 billion cash stored in foreign jurisdiction. Previously the company was unable to use this cash.

Apple to buy Netflix: Why ?

Apple (NASDAQ: AAPL) has been struggling from many years to offer compelling video contents to viewers . The company has realized that the film and television industry is very different from music industry and its video offering is not up to the level of offerings made by its competitors Netflix and Amazon.com Inc (NASDAQ: AMZN).

It is very well known that merger and acquisition or we can say takeover gives solution to the challenges both the companies face. And in this case, both the companies know very well that the mightiest competitors they are facing is Amazon Inc. If this acquisition happens then Apple will be the world’s leading internet television with more than 90 million members in 190 countries.

Market Impact Analysis

Apple whose current stock price is $169.23 has surged 50% this year. And Apple market cap. stands at $860 billion, not far from a trillion- dollar company.  Currently Stock is trading at a price 15 times the earnings estimate of fiscal year 2018. Netflix market cap. is approx. $83 billion and investors are expecting considerable growth of the company.  P/E ratio of the company is 18.37 while beta is 1.37. If this acquisition increases growth expectation of the company then chances are quite high for stock price surge. But on the other hand flip side is just opposite. Investors may hate the deal because of Apple’s core business distraction.

Investor may correlate the acquisition with the situation of its software rival Redmond, the company lost a decade in acquisition of many companies including big and small. Most of them failed and finally resulted in destruction of billion dollars value of shareholders.