Apple Inc. (NASDAQ:AAPL) is finally reportedly closing in on the Beats Music acquisition, but Wall Street isn’t all that excited about the deal. Though CEO Tim Cook said that he is excited about the deal, and Eddy Cue believes the deal will help music grow again, analysts and investors are not so enthusiastic.
No game changer
Dan Niles, chief investment officer of hedge fund AlphaOne Capital Partners said that the amount Apple Inc. (NASDAQ:AAPL) is spending on a company that draws its revenue from hardware is not what analysts want to see.
Patrick Becker Jr., portfolio manager at Becker Capital Management, said that the firm does not want to see a company buy another company for $3 billion, which was just valued at $1 billion few days back. He said, “We wonder whether this is an appropriate use of shareholder cash.”
The majority of the analysts expected Apple Inc. (NASDAQ:AAPL) to enhance its streaming music business and sign content deals for TV. Also, Beats Music and Lovine willd prove helpful for the company in its musical endeavors, but the deal is not a game changer.
Josh Stewart, portfolio manager of the Wasatch World Innovators Fund, said that streaming music is a far better space to lead compared to Headphones, but acquiring Beats Music will not help Apple to dominate the streaming space.
Apple paying high price, but could be worth it
Morgan Stanley analyst Katy Huberty, however, says that Apple Inc. (NASDAQ:AAPL)’s deal with Beats is a low risk, potentially high return deal. Analysts added that Beats music business is growing at a rate of 30% per year and this growth justifies Apple’s acquisition price.
Apple Inc. (NASDAQ:AAPL) has stated that it will acquire Beats for $3 billion, which will be the largest acquisition by the iPhone maker to date. Beats is popular for making premium headphones and recently came up with a music streaming service that attracted Apple. Huberty believes that the subscription music service can be a game changer because every 1% penetration of Apple’s 800 million active users is equal to the revenue of $960 million. She said that Beats is the company that has adopted the right strategy as it leverages both algorithms and 200 human curators to create a playlist.
“Apple plans to monetize the service with aggressive subscriber growth (from 250K today) and become profitable over the long term,” Huberty wrote.
Analyst Rod Hall of J.P. Morgan thinks that paying $3 billion for acquisition is very high, but the company is cash rich with $133 billion in the bank.