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Apple's next move? Entertainment, Autos, Games or Healthcare!

Earnings season is almost wrapping up with most of the companies announcing results and forecast better than feared in Dec. With Fed on hold, avoidance of shutdown, incremental but positive progress on trade talks and economy's "goldilocks" state, markets are responding well with 11% gain YTD (largest since 1991 and 1987). IMO, biggest catalyst of trade deal with China is yet to come in Spring. So markets has some more upside left before summer. 
Apple has amassed nearly $250 Billion cash and everyone has opinions on what they should do with the cash. With its flagship product iPhone sales slowing down, its obvious that Apple needs next big market to move the needle. So let's look at 4 new markets and potential companies Apple can acquire to get started!

Entertainment: 
The entertainment industry is changing to streaming world started by Netflix and boosted by Amazon Prime. Netflix original movie "Roma" winning Oscar next Sunday will make it official! Even behemoth like Disney had to respond by planning to introduce Disney+ by end of year. Apple has been toying the idea for last few years but has been very slow to respond. Their supposedly new service to be introduced in Apr will be too late and too pricey. So if Apple is serious about being major player in this, it should consider buying Netflix or Disney. Of course this will cost $200 Billion and would be biggest acquisition of all time and I don't think it will happen (due to Apple's DNA).

Autos:
Auto industry is going thru similar transformation with electric vehicles and self-driving cars. Apple's rumored "Apple Car" is supposed to come in 2020 or later. Tesla, NIO and even traditional car companies like GM have at least 5-10 year's of head start with battery technology and self-driving AI driven software. Google's Waymo is also way ahead. Apple is playing catchup. Apple could buy Tesla (for say $80 Billion) and instantly become leader in both EV and self-driving cars (and also solve Tesla's cash problem). Auto industry is over trillion $ and even 5% market share would move the needle for Apple

Games:
Game industry is tricky since gamers are very finicky. However as Netflix's Reed Hastings said, entertainment/streaming industry has to pay attention to this since person can do only one at a time - play games or watch movies/shows. And Epic Games's "Fortnite" has proven what a compelling, multi-player game can do. Fortnite has over 80 million active monthly users with over Billion hour of playtime over multiple months. It had effectively garnered so much playtime and attention that traditional game companies like EA and Activision had to announce warnings in their quarterly results. Apple could become instant leader by buying Epic Games (for say $25 Billion) if it is willing to sell or go traditional by buying Electronic Arts (will cost about $50 Billion) and leverage its gaming properties and expertise to create something like Fortnite.

Health care:
With Apple Watch and partnerships with various companies, Apple has been testing the waters of health care. Health care industry has been bigger than all three mentioned combined and one of the most complex industry. Due to regulations, it is also slowest industry to adopt changes and hence almost opposite of tech industry. By applying tech industry's speed of innovation and Apple's stance on privacy (which is very much needed), Apple could make a big difference in not only moving the needle for itself but also change the cost of healthcare for US economy. There is no obvious company Apple could buy to jumpstart (that's why Amazon, JP Morgan and Berkshire started new company), it could consider parts of United Healthcare, CVS or Epic Healthcare!

It's hard choice for Apple. It can do all of these organically over next 10 years or make a big splash by changing the way it enters new industries. After all cash in bank has no value when it comes to growing the company! And if its hard choice, Apple could afford to enter multiple industries with its $250 Billion war-chest! 
And it needs to move fast before new iPhone launch event becomes as boring as Oscars!

/Shyam






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