Apple should buy Disney as the tech giant could add $631 billion to its market value by growing its content library, investment bank says

Apple and Disney both have rabid super-fans, premium pricing power, global scale, and a user base of wealthy consumers, Needham said.

• Apple should buy Disney to build out its streaming content library, according to Needham.
• The investment bank believes a business combination would add up to $631 billion to Apple's market value.
• "They are worth more together than separately," Needham analyst Laura Martin said.

Apple should buy Disney to grow out its streaming content business, Needham analyst Laura Martin said in a note on Thursday.

She argued that such a deal, if funded by Apple stock, could add as much as 25% to the iPhone maker's valuation, which comes out to about $631 billion based on its current $2.5 trillion market capitalization.

"Offensively, as an upside value driver, strong distribution and world-class content are complementary networks. That is, they are worth more together than separately, we believe," Martin said. 

She cited Apple's ability to monetize its 1.25 billion customers who have 2 billion active Apple devices being used for an average four hours per day. 

Apple has been focused on monetizing users, with the company launching various service subscriptions over the past few years, including Apple Music, Apple TV+, Arcade, Fitness+, and Apple News, among others.

"These ancillary products and marketing decisions lower the entry barrier to Apple's ecosystem (and raise the exit barriers)," Martin said. And adding Disney+ and its vast content library to Apple's ecosystem would make it that much easier to attract new customers, as well as raising the exit barrier even higher.

"What Apple does best is distribute content globally to 2 billion high-end mobile devices owned by 1.25 billion unique and wealthy users. And what Disney does best is create AAA content franchises, which is distributes globally across all screens, as well as in the physical world," she added. 

Both companies have rabid super-fans, premium pricing power, brand-first corporate decision making, global scale, and a base of wealthy consumers, according to the note.

"This implies that these key assets and value-drivers become stronger, and are not diluted, if the two companies are put together," Martin said. 

It's not the first time market participants suggested a tie-up between Disney and Apple makes sense, given that they both have a family-friendly aura and have struck deals in the past. Disney purchased Pixar from Apple in 2006 for $7.4 billion, and Disney CEO Bob Iger had a close relationship with the late Apple founder Steve Jobs. Iger has even said previously that if Jobs did not pass away in 2011, he would have likely sold the company to Apple.

But Iger shot down the idea of selling Disney to Apple in his first town hall after he returned to the CEO job late last year amid a swirl of rumors that cropped up within the company. 

And Apple typically shies away from mega deals, making the idea of a merger a tough pill to swallow. Disney currently has a market capitalization of about $180 billion, and the biggest deal Apple ever did was its purchase of Beats by Dre for $3 billion in 2014.

Still, Martin thinks Apple needs to get serious about its content streaming business to bring more customers into its ecosystem, and it could do that with the help of Disney.

"I think Apple is doing a very mediocre job of streaming. They just said they were going to do a billion dollars in film financing. That's sort of laughable, because these companies that are competing in content businesses are spending $30 billion a year. Even Netflix is spending $20 billion a year," Martin said in a CNBC interview on Thursday.

"Guess what the Walt Disney company has: 100 years of some of the best intellectual property, characters, and film franchises on earth. So to own that in perpetuity would actually lower Apple's cost," she said.