Say goodbye to those little white Apple Inc. (NASDAQ:AAPL) headphones, because next time you purchase an Apple product you might be receiving Beats by Dre headphones.
Apple in the News
Nothing is confirmed just yet, but Apple Inc. (NASDAQ:AAPL) is rumored to be propositioning Beats Electronics for both their retail business and streaming music service. Due to the fact that Apple’s radio streaming service, iTunes radio, is not seeing the type of growth Apple Inc. (NASDAQ:AAPL) expected – and with Pandora Media Inc (NYSE:P)’s competition taking over the market – Apple needs to look somewhere else to stay in the game. The rumored $3.2 billion deal will give Apple access to Beats’ already established, and popular, streaming music service, as well as broaden its retail market with Beats’ premium headphones.
What Does This Mean for Apple Stock?
The potential acquisition of Beats by Apple Inc. (NASDAQ:AAPL) has caused some confusion amongst analysts, however, Piper Jaffray analyst Gene Munster, still maintains his BUY Apple recommendation. Gene thinks the deal is “a bad idea” because he is “struggling to see the rationale behind this move”. Gene noted, “Beats would of course bring a world class brand in music to Apple, but Apple Inc. (NASDAQ:AAPL) already has a world class brand and has never acquired a brand for a brand’s sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.” However, Gene does believe that Beats co-founder Jimmy Lovine would be a major asset for Apple’s overall content strategy. Gene is ranked 129 out of 3060 analysts, with a +1.8% average return over S&P 500 (INDEXSP:.INX) and a 55% success rate of recommendations.
On the other hand, Wells Fargo analyst Maynard Um is not willing to raise his rating to match Gene’s BUY rating, and has decided to maintain his HOLD Apple rating. Maynard believes that Apple Inc. (NASDAQ:AAPL) should only be interested in Beats’ streaming music service, but he does not see the valuation. Maynard noted, “in our view, AAPL’s interest in Beats is not (or should not be) in the hardware but the crossplatform music subscription service. However, it has only amassed subs in the ‘low six figures’ according to Billboard ests.” This mean that, “the valuation either means Beats has seen recent growth or Apple expects big growth to get a return on its investment.” If the deal goes through, Maynard believes that Apple will have to reinvent its business model and he believes that, “Apple should be acquiring other assets to better position itself, particularly for $3.2B.” Maynard is ranked 2062 out of 3060 analysts, with a -0.7% average return over S&P 500 (INDEXSP:.INX) and a 46% success rate of recommendations.
A deal has yet to be finalized between Apple Inc. (NASDAQ:AAPL) and Beats Electronics, but analysts are already getting vocal about the potential implications of such an acquisition. Whether analysts advise HOLD or SELL, it is clear that there are questions regarding this possible acquisition.