Two analysts from Citigroup have put trading desks on high alert. In a note sent to private clients, they say there is a 40% chance that Apple will buy Netflix. Inevitably, Netflix’s share price has been surging higher in response – benefitting from the ‘buy the rumour’ scenario.
However, is this just a few analysts having a punt or is there any sound basis of fact behind it? With Netflix approaching a $100 billion market capitalisation, is it really a company Apple would buy? Most importantly, is there a trading opportunity here? Let’s find out!
Apple’s $245 billion war chest
Most traders are fully aware of Apple’s declining iPhone revenue. On 2 January, Apple CEO Tim Cook warned that – for the first time in over a decade – the company would miss its revenue estimates by a whopping $7 billion. The company is actively looking to build more income streams.
In its latest earnings call, Apple revealed they are sitting on a huge $245 billion offshore cash stockpile. This has led some analysts, like Citigroup and even JP Morgan, to speculate that Apple could repatriate those funds back to the US as new tax rulings would impose only a 15.5% rate, rather than the previous rate of 35%.
So what could they do with all that repatriated cash? Most likely, make a huge purchase to further the company’s goals. However, while Citigroup analysts believe there is a 40% chance of the company buying Netflix, it would be quite out of character for the iPhone maker. Typically, Apple likes to build technology or platforms in-house, or purchase smaller companies to integrate into their network.
Having said that, companies are scrambling to get in on the online streaming boom. With Netflix running away with the biggest market share, no company can afford to be left out.
The battle for online streaming
Shares in Netflix – the biggest streaming company in the world – has been one of the best-performing stocks of 2019 so far. This is largely due to its recent subscription price increase, given the emergence of Amazon coming to occupy a large portion of the online streaming market. Even some newcomers to streaming services have begun to make some big moves to gain market share.
Most significantly, Disney announced an end to its content deal with Netflix as they prepare for the launch of their own streaming service. In fact, Disney has gone one step further by acquiring 21st Century Fox for around $52 billion in stock. This not only gives them control of 20th Century Fox’s film and TV studios, but also online streaming service Hulu. While the deal has been approved by shareholders, it is not expected to be finalized until at least June 2019.
Meanwhile, Apple’s standalone media streaming service is still currently in development. However, there have been reports to suggest that the company is secretly planning a gaming subscription service that will be like a ‘Netflix for games’ – a huge and yet untapped market. Considering Apple’s biggest ever purchase was buying Beats for $3 billion, many market participants are dubious of the company spending over $80 billion to buy Netflix.
So what is the trade?
Trading Netflix vs Apple in 2019
Both companies are hot stocks right now which can help to provide interesting trading opportunities for both short term and long term traders. Deciding which company and strategy best suits your portfolio will come down to your own individual trading processes and methodologies. But let’s see what more information we can gather from the price charts of both companies:
Source: Admiral Markets MT5 Supreme Edition, NFLX, Weekly – Data range: from April 2, 2017, to February 13, 2019, accessed on February 13, 2019, at 3:52pm GMT. – Please note: Past performance is not a reliable indicator of future results.
In the weekly chart of Netflix’s share price above, buyers have managed to regain control after breaking through recent resistance as shown by the black line. All eyes are now the previous all-time high as traders could stay bullish till that point.
Source: Admiral Markets MT5 Supreme Edition, AAPL, Weekly – Data range: from May 24, 2015, to February 13, 2019, accessed on February 13, 2019, at 3:55pm GMT. – Please note: Past performance is not a reliable indicator of future results.
In the weekly chart of Apple’s share price above, buyers have recently come back into the market after find support at the horizontal black line. Unlike Netflix, there is much further for Apple to go before it reaches its previous all-time high price level. However, for traders who believe in the future of Apple’s products, that could provide an interesting risk to reward scenario.
Both stocks seem to be a hot commodity right now. Trading in Share CFDs offers some key advantages, while allowing the use of advanced volatility protection settings. Whether you trade Netflix or Apple, it is essential to have the right tools.
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