GENE MUNSTER: Apple could use its repatriated cash to buy Magic Leap or Peloton (AAPL, TSLA)

Gene Munster

There's a lot of speculation about how Apple will use its $245 billion overseas cash stash now that it's announced it will pay taxes on the money, freeing it to spends the cash as it sees fit.
The company likely won't use the cash to buy Tesla or make another mega-merger, said Gene Munster, a longtime Apple analyst.
Munster thinks Apple will mainly use the money on stock buybacks and paying dividends.
However, Apple could be eyeing smaller startups, such as Google-backed Magic Leap or fitness startup Peloton, he said.

Is Apple about to go on a shopping spree with its $245 billion or so in overseas cash?

Quite possibly, says Gene Munster, who's scrutinized the company for years as a financial analyst. Just don't expect the iPhone maker to buy Tesla or make any other mega-acquisitions.

"We don’t think they're going to do any big M&A deals," said Munster, a managing partner at venture capital firm Loup Ventures, meaning anything over $5 billion.

Instead look for the iPhone maker to snap up some some smaller startups, he said. And the company that could be at the top of its list is Magic Leap, a Google-backed startup that makes an augmented-reality headset, he said.

Magic Leap was last valued at $6 billion, which makes it a little pricier than Apple might be willing to spend, Munster said. However, Apple CEO Tim Cook has bet big on augmented reality, which could make Magic Leap a good fit.

Apple sparked renewed speculation over what it might do with its overseas cash when it announced Wednesday that it will pay $38 billion in taxes on that stash, freeing it to spend the rest of its estimated $245 billion as it chooses. The company said it plans to invest in a new corporate campus and expanding its data centers, although it's unclear if the money for those will come out of its foreign cash.

For his part Munster expects the majority of Apple's overseas cash will go into stock buybacks and dividends. But he thinks it will save some money for acquisitions too.

Apple has reportedly invested billions in an effort to develop a car, an effort that thus far has yielded no obvious benefits. That's led to speculation that the company try to buy Tesla to jump start its entry into the car market.

But Munster doesn't think that's going to happen. While Apple might want to buy Tesla, Elon Musk, the electric car company's CEO, "won't sell," Munster said.

A Magic Leap acquisition may not happen either. Munster himself called it a "controversial" pick, and not just because of its valuation. The company has struggled to convince the public at large that it has a commercially viable product.

After six years and $1.9 billion in funding, the company only publicly unveiled its first-ever headset in December. The company has been operating under strict conditions of secrecy, with only a few key people, including Beyonce, allowed to try the new headset before it launches.

Magic Leap

But there are other companies that could attract Apple's attention. One acquisition target could be Peloton, Munster said. Cook has indicated that health technology will be a major focus for Apple. That could make Peloton, which has been developing wide-ranging fitness business that includes high-end hardware, livestreamed classes, and a 600,000-strong subscriber community, a good match.

Munster also thinks Apple could be eyeing software and services companies to bolster its behind-the-scenes technology. Last year, Apple bought a data analysis startup called Lattice Data for $200 million, and Munster thinks more deals along those lines could be coming.

In general, though, Munster thinks that the lion's share of the cash will go to shareholders. When the company announces its quarterly earnings on February 1st, Munster expects it to announce a $70 billion share buyback program and a $12 billion one-time dividend. He also expects it to increase it regular, annual dividend by $10 billion.

When it comes to Apple's cash repatriation, "investors are going to be the biggest beneficiary of that," he said.

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