Apple Inc. (AAPL) Acquires Topsy

Apple’s (AAPL) recent acquisition of Topsy Labs has been subject to numerous conjectures and speculations. Industry experts believe that Apple can use the data available from Topsy to enhance the effectiveness of its various products including Siri, iAd services and content recommendations for iTunes.

Topsy is a data warehouse of Twitter’s (TWTR) tweets. According to the New York Times, the company is capable of analyzing half a billion tweets sent over the social media platform every day.

Moreover, Topsy has indexed every tweet since 2006 and has made them searchable, much similar to what Google’s (GOOG) search engine does on the web.

The acquisition provides Apple with a vast amount of unstructured data, which Apple can use to understand social as well as business trends, which is very helpful for clients such as marketers.

We note that Apple’s iAd banner has not been that much successful. Although the company had aggressively promoted its ad products during the launch of iRadio, Apple continues to face significant competition from Google and Facebook (FB) in the advertising market.

In such a scenario, we believe that the availability of this vast data will help Apple to attract marketers, going forward. This constant data flow will not only help them to target the right audience but also to understand the effectiveness of their campaign.

Apple makes small but strategic acquisitions that provide it with specific technology or products. Of late, the company has shown keen interest in acquiring social media data generators such as discovery and recommendation provider and data compression technology provider — AlgoTrim.

Including these two, Apple completed 15 acquisitions in fiscal 2013. Some of these were related to its mapping application (Embark, HopStop, WifiSLAM and Locationary), while Cue was a personal assistant app and Passif Semiconductor was a low energy chip maker. Apple recently acquired 3-D sensor developer PrimeSense.

We believe that Apple’s strong balance sheet will allow it to pursue strategic acquisitions to bolster its product portfolio. However, lower-than-expected revenue growth in the U.S., falling gross margins and lack of innovation are expected to remain the primary headwinds in the near term.

Currently, Apple has a Zacks Rank #3 (Hold).

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