Why So Boring, Apple?

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Source: http://www.flickr.com/photos/ollesvensson/

Source: http://www.flickr.com/photos/ollesvensson/

Does Apple (NASDAQ:AAPL) need to take a page from Mark Zuckerberg’s playbook and reenergize itself with a large acquisition? Last week, Facebook (NASDAQ:FB) revealed that it was acquiring instant messaging service WhatsApp for approximately $4 billion in cash and $12 billion in stock. As noted by Zuckerberg in a press release, the deal gives Facebook access to WhatsApp’s nearly 1 billion users.

In a recent commentary at Forbes, Eric Jackson argued that Apple needs to ditch its slow-and-steady-wins-the-race approach to its business and start making aggressive acquisitions like Facebook. Jackson is the founder and managing partner of Ironfire Capital, a tech-focused hedge fund.

According to Jackson, Facebook’s acquisition of WhatsApp will serve its long-term business interests better than Apple’s $14 billion stock buyback. Tim Cook recently told the Wall Street Journal that Apple repurchased $14 billion of its own shares soon after the company announced its fiscal first-quarter financial results. Although major investors like Carl Icahn have long been pushing Apple to return more capital to shareholders with a large stock buyback, Jackson pointed out that Apple’s share price is actually lower since Cook’s announcement.

The tech industry commentator also noted that there are gaps in Apple’s business that could be bolstered by a major acquisition. For example, he believes Apple would benefit from abandoning its so-called “walled garden” ecosystem and acquiring a major cloud storage company such as DropBox that would draw non-Apple users into the company’s business.

Apple is famously averse to using its substantial cash hoard for large acquisitions and has historically taken a slow and thoughtful approach to its product business. In Apple’s preliminary proxy filing, the company noted that one of its reasons for opposing Icahn’s share repurchase proposal was that, “The Company’s rapid pace of innovation require unprecedented investment, flexibility and access to resources.” This financial strategy has allowed Apple to accumulate a $159 billion cash hoard.

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