Is Apple going to buy Netflix after Trump’s tax reform? Analysts say maybe, we say unlikely

Murmurs of an acquisition of Netflix by tech juggernaut Apple have been running amok across the internet for years as the streaming boom dominates media consumption. Now thanks to the passing of President Trump’s hugely generous tax bill, two Citi analysts, Jim Suva and Asiya Merchant, have predicted a 40% likelihood of an acquisition occurring. Proving that we can be just as non-committal as city analysts, we think Apple probably won’t acquire Netflix after their repatriation of cash.

Ranking Apple targets, Suva and Merchant marked off Netflix as the company Apple would most likely acquire after Trump’s tax bill in a note to clients back in December.

The tax bill gives companies like Apple the opportunity to bring hundreds of billions of offshore cash back into the US at the lower tax rate of 15.5%, a huge cut from the 35% tax rate seen previously. This is what has buoyed Citi analysts’ prediction of a potential Netflix acquisition. But why Netflix?

“The firm has too much cash – nearly $250 billion growing at $50 billion a year,” Suva and Merchant told clients. “This is a good problem to have. Apple has avoided repatriating cash to the US to avoid high taxation. As such, tax reform may allow Apple to put this cash to use. With over 90% of its cash sitting overseas a one-time repatriation tax would give Apple $220 billion for M&A or buybacks.”

Hmm. Well, 40% is a convenient figure, giving Citi analysts the perfect amount of leeway to take credit for any outcome. If Apple buys Netflix, they called it – if Apple doesn’t buy Netflix, well, there was always a 60% chance they wouldn’t.

For us, though, the odds against seem much higher for two distinct reasons. For one, it would cost a third of the repatriated cash to buy Netflix. It seems unlikely that Apple would bring all that money back to the US in order to blow it all on a streaming service when the App Store and iTunes are already doing exceptionally well.

Yes, Apple is going into scripted television, and yes, streaming sites like Netflix have eaten a hole into their iTunes rental model, but at the end of the day, Netflix really isn’t a very Apple-esque acquisition. To date, Apple’s biggest acquisition was buying Beats Electronics, which cost them $3 billion. That’s nothing compared to the $80-$90 billion that it would cost Apple to acquire Netflix. The company’s latest acquisition of Shazam cost only $400 million. For us, this just isn’t Apple’s style.