Apple Inc. (NASDAQ:AAPL) is reportedly in talks to acquire Beats Electronics for $3.2 billion. If the deal goes through, it will be the largest ever acquisition by the iPhone maker. The reports perplexed many regarding what the tech giant plans to do with a high-end headphone and streaming music company. And why would Apple pay such a huge sum for Beats Electronics?
How Apple could make Beats Music a popular streaming service
Maybe, the Cupertino-based company is planning to enter the peripherals business that it ditched when Steve Jobs rejoined Apple Inc. (NASDAQ:AAPL) in 1997. Though the peripherals unit was doing well, Jobs said it was a distraction to the company’s core mission. Anyway, Jefferies analysts Peter Misek and Brian Pitz believe that Beats Electronics is well worth the purchase price of $3.2 billion.
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Upon acquisition, Apple Inc. (NASDAQ:AAPL) will get Beats’ amazing creative team that could help the iPhone maker in creating valuable hardware for the wearables market. Jefferies says such a team would help Apple in the development of the iWatch and other future wearable products. Moreover, Beats Electronics launched Beats Music in January. Though Beats Music has only about 500K subscribers, analysts believe that the subscriber base would grow rapidly if it comes preloaded on the iPhones. These capabilities and assets are well worth the price.
Google, Amazon may follow Apple to buy music streaming services
Jefferies expects the music streaming market to get fiercely competitive in the near future. Peter Misek and Brian Pitz believe Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) or Amazon.com, Inc. (NASDAQ:AMZN) to enter the music market by acquiring a streaming service. Spotify could be a target because it is a good complement to Amazon’s existing digital offerings.
Latest reports suggest that Apple Inc. (NASDAQ:AAPL) is gearing up to launch its big-screen iPhone 6 in August. Its partners are likely to produce 80 million iPhone 6 units in 2014, compared to 40-45 million iPhone 5S units produced in the later half of 2013. If Beats Music comes preloaded on the iPhone 6, it could become one of the largest music streaming services. Jefferies has a Buy rating on the stock with $700 price target.
Apple Inc. (NASDAQ:AAPL) shares inched up 0.78% to $590.09 at 9:50 AM EDT on Monday.