Apple needs to make a big push into content – and in doing so, it should make a significant acquisition, noted analyst Dan Ives told CNBC on Thursday.
“Right now it’s all about services and the installed base,” he said, referring to the number of products in use in the world. “But you need to monetize, you need fuel in the tank and we believe it’s content. That’s why be we believe this is the year they finally do a big M&A.”
The tech giant is aiming to launch its new streaming video service in April or May. It will feature free original content for device owners and a subscription platform for existing digital services. However, Netflix isn’t expected to be a part of it and HBO’s participation is in doubt, CNBC’s Alex Sherman reported last week, citing people familiar with the matter. Lions Gate’s Starz; CBS, which owns Showtime; and Viacom are expected to offer subscription streaming services on the platform.
Ives said Apple needs an acquisition because it is “miles behind” the competition. And it certainly has the money to spend — it now has $245 billion cash on hand, according to its first-quarter 2019 earnings report.
“If they want to be a serious player here they are going to have to significantly invest in the platform in terms of having their own original content,” the managing director at Wedbush Securities said on “The Exchange.”
As for what acquisition would make the most sense, Ives pointed to names like A24 Studio, Lionsgate, Viacom/CBS, Sony Pictures, MGM Studios and Netflix, as well as a potential gaming publisher as a subscription service.
If Apple executes with “minimal speed bumps” and aggressively acquires content, Ives believes the Cupertino, California-based company can reach 100 million subscribers in three to five years. That could translate into a $7 billion to $10 billion annual revenue stream over time, he wrote in a note to clients earlier in the day.
If it doesn’t take advantage of the “ripe” M&A landscape, “it will be a major strategic mistake in our opinion that will haunt the company for years to come,” wrote Ives, who has an outperform rating and $200 price target on the stock.
Apple has had its share of ups and downs of late. The tech giant reached a $1 trillion market cap on Aug. 2, but the stock has since dropped about 15 percent. In January, Apple slashed revenue guidance, blaming weak iPhone sales in China. It was also dethroned as the world’s most innovative company in Fast Company’s annual ranking.
Shares of Apple closed slightly lower Thursday.
“It’s a defining period for Cook and company. Definitely a dark chapter they are trying to get around,” Ives said.
Apple did not immediately respond to a request for comment.
Disclosures: Wedbush Securities is a market maker in Apple.
