Controversial

The Many Ways Apple Could Spend All That Cash

Most people at some point in their life dream about what they would do if they were suddenly super rich. We think of all the nice things we would buy, the good we might do and the various wonders we might work if we suddenly awoke to find ourselves with an impossible amount of money.

But when most people are thinking “rich” they are not thinking about sums as large as $160 billion, because it is an amount almost too hard to even imagine. If on Jan. 1 one was given $160 billion and told to spend $37 million per day for the rest of the year, on Dec. 31 that person would still have around $33 billion left in the bank and be the 18th richest person on the planet.

Apple has roughly $160 billion in cash reserves – and that is the low-end estimate. The high-end number proffered by the Motley Fool is $178 billion. And this massive cash balance is despite strenuous efforts on Apple’s part to return money to its shareholders. In the past 12 months alone, the company returned over $57 billion to shareholders when including both dividends and buybacks.

But Apple seems to generate cash almost as fast as it can spend it – in Q4 2014 the tech firm generated $30.5 billion in free cash, and though Tim Cook will likely announce further dividends during Apple’s Q2 earnings call – it seems unlikely that any sort of meaningful dent will be made in Apple’s massive cash holdings.

But they are trying. Over the last 12 months, they made 17 acquisitions including the $3 billion acquisition of Beats. In the last couple of weeks, they shelled out $20 million for LinX Imaging and an unknown amount for FoundationDB. They are investing $850 million in a solar facility in California near their new corporate facility and just recently bought 36,000 acres of forestland in Maine and North Carolina.

But even that hasn’t made a dent.

So we at PYMNTS thought we could help Apple spend its money with some of our best out of the box ideas for blowing cash reserves almost 4X the size of what the United States Treasury currently has in its cash drawer (about $43 billion). Some will help Apple Pay, some will help Apple in general and others are just things on the staff’s eCommerce bucket list.

Apple Could Buy Costco, Target and TJX  

Apple Pay needs two things if it is ever going to ignite – more merchant locations and more consumers building a habit around using Apple Pay. Ideally, Apple could just buy the nation’s largest retailers to make that happen and be done with it.

Unfortunately the nation’s largest retailer is Walmart – and with a market cap over a quarter-of-a-trillion dollars, Walmart is one of the few things that is even out of Apple’s price range.

The nation’s second largest retailer however is Costco, and it comes with a much more reasonable market cap of ~$65 billion. In fact, Apple would be getting such a good deal with Costco, they could pack on Target – the second largest discount retailer after Walmart – for ~$50 billion and still have just enough left over to snap up the nation’s largest discount apparel merchant TJX for ~$45 billion.

Apple’s total spending would be $160 billion on the nose.

What’s In It For Apple

Other than assuring itself all the headlines for the rest of the year – Apple would have seriously chipped away at the merchant acceptance problem that has plagued their payments platform since launch. And Costco, Target and the TJX brands all have the additional benefit of being regular, routine shopping destinations for people all over the United States – meaning consumers would increase their odds of actually developing the Apple Pay habit. Plus, Apple needs a diversity of merchants in its portfolio.

What’s In It For Costco, Target and TJX

Costco may be popular, but it isn’t necessarily what consumers perceive to be a cool, hip and happening brand. That’s the problem with the warehouse shopping experience – it is cost effective and efficient, but it also sort of lends itself to parody and so it’s impossible to feel cutting edge while doing it. Costco is simply where people who live in the suburbs and like to buy in bulk shop long after they have given up on feeling cool or cutting edge.

Apple, on the other hand, really knows how to redesign the consumer experience such that one feels cooler merely by shopping there. Does Costco need a Genius Bar? It is easy to dismiss as a silly idea – but those stores are big and perhaps adapting the concept to “Genius/Guide Bar” could really add something to the whole experience.

Target already gets to be the “cool” discount retailer with the name that lends itself to a French pronunciation –Tar-jey – or at least it did until it became the retailer synonymous with point-of-sale breaches in 2014. Rebooting under the Apple umbrella – with Apple’s universally praised security protocol – may be just what Target needs to get back to doing what it does best: being the classier version of Walmart.

TJX also gets a security bump – but more than that, a cool and cutting edge vibe. TJX is very profitable but has been late to the digital mobile party. This would certainly help bridge that divide.

Apple Could Rent The State Of New Jersey For Five Years

Now if Apple were going to rent out a state obviously its first choice might not logically be New Jersey. New York and California might top that list, but with operating budgets of $147 billion and $153 billion, respectively – Apple could really only afford to rent either state for about a year.

New Jersey, on the other hand, has a state budget of just around $32 billion – which means that Apple could actually snap up the Garden State and own it for about five years.

What’s In It For Apple

OK, admittedly New Jersey is sort of an out of the box choice for Apple – but hear us out. First of all, New Jersey has the highest population density of all 50 states — there are more people per square mile than there are anywhere else in this country — and 90 percent of its residents live in an area officially classified as a city. This dovetails nicely with Apple’s large urban user base – and also when one is trying to get word of mouth started on anything, New Jersites are packed uniquely close together.

New Jersey also has the highest density of shopping malls on planet Earth – with seven separate temples dedicated to physical retail in a 25 square mile radius. And, unlike much of the rest of the country – mall shopping in New Jersey is still largely thriving, as people in New Jersey love physical retail only slightly less than they love Bruce Springsteen. By renting New Jersey for five years, Apple could easily insist that all of New Jersey’s numerous physical retail locations start accepting Apple Pay.

Apple also offers New Jersey a backdoor ignition plan in New York City, given the volume of bridge and tunnel commuters and among the nation’s college students – since by quirk of math ⅔ of the nation’s college students actually come from New Jersey.

And – this bears mentioning – New Jersey is the affluent consumer base that Apple so cherishes. Per capita income is $35,928 (as opposed to $26,964 nationally) and has a personal per capita income of $50,781. The median household income is $71,637 (as opposed to $59,000 annually) and its median family income is $87,389 (2012), both the second highest in the country.

What’s In It For New Jersey

New Jersey has money, malls, beaches and Atlantic City.

It is sometimes, however, not viewed as entirely classy.

New Jersey needs an image upgrade – since when people picture the Garden State they don’t actually picture a garden.

Now which negative stereotype depends on what era one’s feelings about New Jersey hail from. The old school unfortunate mental image is of New Jersey Turnpike and the miles upon miles of chemical plants that line it. The new school unfortunate mental image is the one nurtured by reality television, care of programs like “Jersey Shore” or “The Real Housewives of New Jersey.”

If one blends those two visions, one gets a picture of New Jersey as a post-apocalyptic hellscape populated by angry, loud and orange aliens with bad taste.

After five years of being a subsidiary of Apple – imagine how much that image could change? New Jersey could be known as sleek, modern and a techtopian paradise. Admit it, if the Turnpike looked like the Apple Store, you would actually enjoy driving on it.

Apple Could Buy AmEx And Discover (And Still Rent Vermont For Awhile)

Instead of using the cash to make a direct play on retail – Apple could instead try to make a bigger buy in on the payments rails themselves by purchasing American Express and Discover. With market caps of ~$83 billion and ~$27 billion, respectively, Apple would still have around $50 billion left, which would be enough to rent Vermont for roughly a decade.

What’s In It For Apple

Instead of having to ignite a payments system – Apple could simply swallow up to large, extraordinarily successful and already globally established payments platforms and take a giant leap forward past all their competitors in the mobile space. They would also get the benefit of completely controlling their own rails – since AmEx and Discover both dually function as card networks and card issuing banks. Apple does love to have total control after all, and that is why this combination of purchases makes more sense for Apple than blowing the whole bank and snapping up Visa (market cap: $161 billion).

AmEx also has the added advantage of bringing an affluent and commerce-enthused consumer base along with it. AmEx’s consumer base and Apple’s user base pair off nicely together into a very enviable piece of market share.

As for Vermont…well, OK, there probably isn’t much economic advantage there, but they have a lot of organic food (which Apple seems to like) and it is very pretty. Apple can officially afford whimsy.

What’s In It For AmEx, Discover (and Vermont)  

AmEx would finally find something to get people to stop asking about Costco and what they are going to do next. In fact, if purchased by Apple, it seems entirely likely that AmEx could conceivably never ever have to hear about Costco ever again. AmEx’s CEO has also spent much of the next year talking about his industry’s inevitable evolution toward mobile – something that would certainly gain priority if the AmEx network lived under the larger Apple umbrella.

Discover finally could stop answering questions about when it was getting on board with Apple Pay. It could also enjoy a bump up in status – since, as the smallest card network – it often tends to get overlooked in favor of larger, flashier players like Visa or MasterCard.

Vermont would finally get to end its long rivalry with Wisconsin and develop an identity outside of cheese. Also, by personality, Vermont is demographically such that the knowledge that they live in a place being rented by Apple will likely contribute immeasurably to the population’s feelings of satisfaction and pride.

Apple Could Buy Ford, GM, Chrysler (Fiat) and Porsche

One popular theory for Apple’s use of its free cash is to purchase Tesla motors – with a market cap of $26 billion (though the popular numbers have Apple dropping about half of its available cash reserves – or $75 billion)

However, given that Tesla very famously gave away its patents in an effort to jumpstart electric vehicle construction – it seems two things are obvious. First, Apple doesn’t really need to buy Tesla – since Tesla is giving the milk away for free. Secondly, perhaps there might be some cultural differences between these two firms that would preclude a long and successful relationship.

But with its free cash, Apple could snag Ford ($63 billion), GM ($60 billion), Chrysler/Fiat ($9.4 billion) and Porsche ($14 billion) and still have $15 billion left over.

What’s In It For Apple

If recent reports are to be believed, the car is the next coming mobile commerce battleground, and the next generation of smart cars will power shopping while driving. Apple could put all its eggs in Elon Musk’s basket, or they could use their cash reserves to buy up 300 years of the combined automotive ingenuity that the big three American car companies represent.

And even if that isn’t persuasive – even if Apple wholesale lost out on the investment – the public relations value of the move alone would more than pay for the expenditure.

Porsche is the odd company out here. Porsches are awesome and Apple has to also on some level build the most elite version of the smart car. Porsche seems like a good place to start on the automotive equivalent of the $10K smartwatch.

What’s In It For The Car Companies  

All three American car companies have been stuck in a losing market share battle for the last 40 years with foreign competitors. Unless one has very specific tastes, the finest cars in the world are not American – and though all three companies have seen their fortunes improve over the last 7 years – less than a decade ago all three were on bankruptcy’s door and needed a massive direct infusion of cash from American taxpayers who were not given cars for their money.

American car companies are still turning around, which is not the same as turned around.

However, Apple is probably the greatest turnaround story in the history of American industry – hovering on bankruptcy’s door 22 years ago – and today on track to become history’s first company with a $1 trillion market cap.

If one is looking for a turnaround, Apple is probably the best in the business.

As for Porsche – we have to believe that Porsche by Apple sounds cool to them, too.

OK, so we know Apple probably isn’t going to rent any states, or buy Costco, AmEx, Target, TJX, Discover, Ford, or GM. They might buy Tesla – but given their very different outlook on patents, we kind of doubt it.  

But Apple is going to have to find something to spend at least some of that money on – and given the extreme amount – it is probably going to have to be a lot more out of the box than a couple million acres of trees.  

We’re just saying.

 

——————————–

Latest Insights: 

Facebook is a giant in the ad game, with 2.3 billion active monthly users and $16.6 billion in quarterly advertising revenue. However, its omnipresence makes it a honeypot for fraudsters. In this month’s Digital Fraud Report, PYMNTS talks with Rob Leathern, Facebook’s director of product management, on how the site deploys automated systems and thorough advertiser vetting to close the lid on fraudster attempts.

3 Comments

TRENDING RIGHT NOW

To Top