E Here’s Why Apple Should Buy Disney

Overview

Over the past two years, Disney’s (DIS) earnings multiple has shrunk from 22x to 17x, while Apple’s (AAPL) has risen from 12x to 17x. Remarkably, they now trade at the same multiple, while Disney enjoyed a premium of 80% in earlier years, reflecting its strong brand and durable business. While Apple is flying high right now along with the rest of the technology sector, an acquisition of Disney would serve as a hedge against an inevitable downturn in the handset cycle, and drive more recurring service revenue at Apple.

Rationale for deal

The handset world has largely been reduced to a duopoly between Apple and Samsung. While Amazon (AMZN) and Alphabet (GOOG) have had limited success so far in the handset hardware space, they are bound to try again. It behooves Apple’s management and board to try and strengthen their business while they can.

Apple has tried to get into the entertainment business with no success. It has nothing to show for its acquisition of Beats in 2014 for $3 billion. Apple TV is an embarrassment whose number of users pales in comparison to other hardware devices like Fire TV or Roku. There have been rumors for years that the company is going to enter the television business, but so far nothing has happened. 

Meanwhile, wireless carriers are getting into the content business. AT&T (T) is in the process of buying Time Warner (TWX), Verizon (VZ) bought Yahoo, and T-Mobile (TMUS) is offering free Netflix (NFLX) subscriptions to family plan subscribers.

An acquisition of Disney would offer tremendous synergies to Apple. Both are creative-talent companies based in California, with similar cultures that would facilitate an easy integration. Disney’s CEO, Bob Iger, serves on Apple’s board. Iger is scheduled to retire in July 2019 with no obvious successor, and a deal will solve this problem. Further down the line, there is no heir-apparent to Tim Cook at Apple either, and adding Disney’s bench of management talent will widen the available pool.

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Disclosure: Long AAPL, DIS, CMCSA

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Carl Schwartz 6 months ago Member's comment

Good acquisition target for $AAPL that I hadn't thought of. $DIS