Should Apple Take Advantage Of Disney’s Stock Crash And Acquire It?

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The Covid-19 outbreak caused Disney’s stock to fall below $100 for the first time in the last one and a half year as the company has had to delay movie openings, shut down its theme parks, and curtail other entertainment programs. Interestingly enough, this entire situation has once again raised the question of whether Apple should swoop in and buy Disney to save the day.

The rumors and speculations about Apple acquiring Walt Disney Co. aren’t new at all. It goes all the way back to Disney’s acquisition of Pixar in 2006 that made Steve Jobs, the late visionary CEO of Apple Inc. (NASDAQ:AAPL) also co-founded Pixar, one of Disney’s largest shareholders and a member of its board.

After Pixar was bought by Disney, it was believed by many that it was only a matter of time when Apple would acquire Disney to return the favor. Henceforth, these rumors continued to be circulated on and off for nearly 15 years. These rumors received significant momentum last fall as well when Bob Iger, former CEO of Disney, wrote in his autobiography that a Disney-Apple merger would have been possible if Steve Jobs had not passed away in 2011.

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While it’s still not clear what’s cooking at Apple in regards to Disney, let’s first try to understand why it is being considered that there could be no better time than now for Apple to acquire Disney.

Disney’s Hurting Revenue Amid The Outbreak

Because of the rapid pace at which the Covid-19 outbreak is spreading across countries, Disney had to shut down its parks to comply with the lockdown measures which obviously led to them losing millions in ticket sales.

Over 37% of the company’s entire revenue, which is equivalent to $26.25 billion in the last fiscal year ended in September 2019, is generated from these parks. In Q1 FY’20, ended in December 2019, the company generated $7.39 billion from Parks, Experiences and Products. Therefore, Disney stands to lose more than a whopping $7 billion in revenue if the parks remain closed for even just a quarter and that will most definitely be a big blow to their business.

Not only the parks, but it seems like Disney’s media empire stands to crumble as well amid this outbreak even though the launch of the Disney+ was well-timed. Projects for the year 2021 have halted production and everything has come to a standstill.

The March 6th released ‘Onward’ film grossed only $100 million which was way less than total production cost. Disney’s studio executives projected that it would gross well over $500 million.

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On the broadcast side of things, even though with the current lockdown situation many people are glued to their televisions, a lack of content along with a huge pullback in advertising spend has put Disney in a tough spot. In the light of live sports being canceled, Disney-owned ESPN is now doing only repeat broadcasts only.

With all of these situations combined which are putting a huge dent in the company’s cash flow along with a $38.31 billion worth of long-term debt on its balance sheet, Disney is becoming increasingly vulnerable to a hostile takeover.

Apple: A Potential Suitor For Disney?

While not many businesses in the U.S. are in a position to buy in this present scenario, Apple’s huge cash pile of $207 billion is still intact and hasn’t really found a good use for itself. 

Disney’s market cap has already slid to $175 billion and it is being speculated that in the coming weeks the company’s stock will witness an even steeper decline due to their operations being shut down. Therefore, many analysts in unison are considering now is the best time for Apple to swoop in and acquire Disney.

Apple could certainly use the addition of Disney to its portfolio to boost its poorly performing streaming platform as Disney brings an unmatched content catalogue to the table. Marvel, Lucasfilm, Pixar, and recently acquired Fox helped make Disney+ an overnight sensation with nearly 30 million subscribers within its first three months of being available.

However, it is still questionable whether Apple and Disney would be the best possible match for each other.

Apple and Disney: A Mismatched Couple?

Apple and Disney’s ecosystems are way different than each other. Apple ropes in a consumer to pay for their external services such as iCloud, iTunes and App Store and so on after they have bought an iPhone or an iPad and have been thrust into the iOS platform. On the other hand, Disney takes a different approach to their consumers. Disney has the capability to quickly monetize the success of a blockbuster at the multiplex, a hit TV show, or even a popular theme park ride across its different segments it has spent years building up.

It could be said that Disney is the ‘Apple’ of theme parks, movie studios, cruise lines, timeshares, and perhaps even media networks but it wouldn’t help widen Apple’s revenue from services in any way. For example, Apple definitely wouldn’t try to upsell visitors of the Disney World to trade their MagicBands for Apple Watches, neither will it push viewers of ESPN to start paying for cloud storage of games.

However, when it comes to content, Apple would definitely want to have its hands on content that is owned by Disney. The increasing competition in the streaming content market from Netflix, Hulu and Prime Videos would make Apple, sooner or later, to revisit its strategy to serve ‘original only’ content. Instead of individually buying licenses of highly popular shows/movies from Disney, acquiring Disney’s content business will definitely provide Apple with an edge over its competitors.

Global Video Streaming Market

The global online video streaming market was an estimated $245.3 billion business in 2018. However, due to the exploded adoptions of blazing-fast broadband internet, high-speed mobile internet and smartphones in the last few years, the market is growing at a phenomenal rate. The market is estimated to grow at 19.1% CAGR between 2019 and 2024, creating an opportunity worth $688.7 billion for companies like Apple, Disney, Hulu, Netflix and Amazon.

The subscription revenue model drove the growth of the market. It contributed highest to the global video streaming market in 2018 and the trend is unlikely to change. The revenue and subscribers’ growth of Netflix is the greatest testimony to the fact.

Apple doesn’t want to miss out on such a terrific opportunity. Considering the demographic of its user base, it’s much easier for the company to make interested customers subscribed to Apple TV+, conditioned to the availability of content, freshness and popularity.

In the past entire decade, Apple worked incredibly hard to push its net margin above a whopping 20% despite the falling sales of iPhone. Therefore it is questionable whether they are willing to slum it in the younger consumer base along with Disney.

How and when Apple would make its move is only anyone’s guess as of now. Neither the company has indicated the possibility of a takeover or a merger but nonetheless it will be interesting to watch what the future holds. We will keep you posted.

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