Black swan events are the unknown unknowns that no one can even envisage, let alone predict. But their close cousin – grey swans – can enter our imaginations. These are low probability, high impact events that few expect. They aren’t even our base cases. But by imagining these risk scenarios, we can at least prepare for them should they erupt.
Apple’s earnings have been stagnating in recent years (Chart 1). They are reliant on iPhone sales and upgrades in a maturing smartphone market, and a slowdown in China hasn’t helped. It’s no wonder Apple has focused on expanding its Services and Wearables, Home and Accessories revenues. The trouble is that this will take time and comes with risks.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
Black swan events are the unknown unknowns that no one can even envisage, let alone predict. But their close cousin – grey swans – can enter our imaginations. These are low probability, high impact events that few expect. They aren’t even our base cases. But by imagining these risk scenarios, we can at least prepare for them should they erupt.
Apple’s earnings have been stagnating in recent years (Chart 1). They are reliant on iPhone sales and upgrades in a maturing smartphone market, and a slowdown in China hasn’t helped. It’s no wonder Apple has focused on expanding its Services and Wearables, Home and Accessories revenues. The trouble is that this will take time and comes with risks.
The clearest case of this has been Apple’s continued forays into TV – whether as a platform (Apple TV), or more recently into content (Apple TV+). Its strategy on the content side was to work with well-known actors and directors to produce a small set of high-quality shows that would signal Apple’s intent. The trouble is that rival streaming services such as Netflix and Disney+ already have a comparable quality; but they also have the quantity.
While Apple has famously been reluctant to make large acquisitions, perhaps 2020 could see them lose patience and take that path instead. And what better target than Disney? The financials could work. Apple’s market cap of $1.2 trillion dwarves that of Disney ($265bn). In fact, Apple has over $200bn in cash on its balance sheet, which alone could almost fund the purchase. The acquisition would give a large library of high-quality content including the Marvel, Star Wars, and Pixar properties. It would also give Apple another entry point into the Chinese consumer market.
We should also remember that Apple founder Steve Jobs was the majority shareholder of Pixar, which was later acquired by Disney. That resulted in Jobs becoming Disney’s largest shareholder. And until recently, Disney’s CEO, Bob Iger, was on the board of Apple. He stepped down just as Apple was launching a TV streaming product. In fact, Iger writes in his autobiography that ‘if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously.’
And if the above arguments are not enough, was it a coincidence that both Apple and Disney ended their streaming service products with a plus: Apple TV+ and Disney+?!
Market implication: Disney shares would rise
Chart 1: Apple Earnings are Stagnating
Source: Macro Hive, Apple
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)