Seeking Alpha

Apple buying Beats for $3B

  • As rumored, Apple (AAPL) is paying $3B to buy the high-end headphone vendor/streaming music provider - $2.6B up-front + $400M that will "vest over time."
  • The deal is expected to close in FQ4. Jimmy Iovine and Dr. Dre will be joining Apple, but their specific roles haven't yet been disclosed. Iovine is stepping down as chairman/CEO of music label Interscope Geffen A&M.
  • Apple will continue using the Beats brand, and states Beats' products will now be "offered in many more countries through the Apple Online Store, Apples retail stores and select Apple Authorized Resellers."
  • More on Apple/Beats
  • Update: Tim Cook on Beats Music: "We love the subscription service that they built—we think it's the first one that really got it right."
Comments (56)
  • Rope a Dope
    , contributor
    Comments (531) | Send Message
     
    This deal may qualify for an 'Honorable Mention' on the Darwin Awards website.
    28 May, 04:44 PM Reply Like
  • milehr
    , contributor
    Comments (475) | Send Message
     
    What does this mean?
    28 May, 06:21 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (531) | Send Message
     
    milehr, the Darwin Awards website gives 'awards' to people who manage to remove themselves from the gene pool in the dumbest way possible.

     

    They also give 'Honorable Mention' to those who do something incredibly stupid but manage to survive. AAPL may not de-throne Lawnchair Larry but I see this as a boneheaded move.

     

    http://bit.ly/1koOJop
    28 May, 08:08 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4048) | Send Message
     
    Why? It's positive in FY 2015 already according to Cook.

     

    See great interview on Recode with CEO Cook why the Beats deal makes sense for $AAPL: http://bit.ly/1gCnXJ6 and similar interviews in the FT and WSJ.

     

    Many people underestimate the margins in Beats headphones and revenue well above $1 billion in 2013, that alone pays for the entire deal (Beats music subs and the execs basically come for free on top of hardware for AAPL).

     

    Great deal imho.

     

    Apple is not following its Valley peers and squandering money with no clear
    ROI plan here.
    29 May, 12:44 AM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (3187) | Send Message
     
    It's boneheaded because Beats brings nothing to the table that Tim Cook couldn't have asked his own people to come up with in a single all-nighter.

     

    Plus Apple didn't keep control over the "announcement". It came from Beats and in the process the "spokesmen" managed to denigrate Apple! How cool is that? Far from bringing strength to the Apple brand, they will continue to use the Beats brand and the Beats "celebrities" who apparently hate Apple too much to control their mouths.
    29 May, 10:27 AM Reply Like
  • Detroit Bear
    , contributor
    Comments (200) | Send Message
     
    Dr Dre would have done a much more aggressive buyback
    28 May, 04:45 PM Reply Like
  • Andrew A
    , contributor
    Comments (116) | Send Message
     
    Yea!! a whole "new" demographic joins the must have Apple way of life... watch the 5s iPhone sales now!
    28 May, 04:50 PM Reply Like
  • milehr
    , contributor
    Comments (475) | Send Message
     
    Won't make any difference.
    28 May, 06:22 PM Reply Like
  • Andrew A
    , contributor
    Comments (116) | Send Message
     
    What do you think now?
    30 May, 08:32 AM Reply Like
  • theantiantihero
    , contributor
    Comments (103) | Send Message
     
    Great deal for Dre. For the shareholders? Not so sure.
    28 May, 04:51 PM Reply Like
  • TimmiesRegular
    , contributor
    Comments (838) | Send Message
     
    This deal is about Iovine folks. Do you know who he is and why you'd want him on your music team?
    28 May, 04:55 PM Reply Like
  • theantiantihero
    , contributor
    Comments (103) | Send Message
     
    If that comment was a response to mine above, I do know who he is, but I have to admit, I'm unclear on what value he's really going to bring. If this is about streaming, AAPL could have bought an industry leader like Spotify instead.

     

    Iovine is an "industry insider" which sounds great, but I haven't read a convincing explanation yet of how AAPL will monetize that. Having said that, I'm open to this deal working. In fact, as a shareholder, I really hope it does.
    28 May, 05:07 PM Reply Like
  • K1smet
    , contributor
    Comments (518) | Send Message
     
    It's also about 'streaming' to give a kick start to iTunes lagging sales of music downloads and about music curating for streaming service. Both Iovine and Dr. Dre are important as well given their contacts and associations in an area Apple isn't in. For those who haven't, go to Beats homepage and read a bit about both. VERY impressive.

     

    I'm guessing Apple will tweak Beats headsets so that they're the state of the art - or close. In the mean time they'll see a nice revenue stream from sales and begin building a streaming music business using the talents of both Dr. Dre and Jimmy Iovine. As the song goes, This could be the start of something big.

     

    I thought, since both were domiciled in Ireland [?] Apple would do a deal there using 'overseas' assets
    28 May, 05:11 PM Reply Like
  • djkidm
    , contributor
    Comments (364) | Send Message
     
    From an artist's point of view Spotify and/or Pandora are not industry leaders. They cannot consistently pay artists what they deserve, and in the end they will lose content.

     

    Jimmy Iovine has figured this out, for both the artists and consumers, and Tim Cook sees this potential.

     

    Besides it's a drop in the bucket for $AAPL.
    28 May, 05:51 PM Reply Like
  • marcparrilli
    , contributor
    Comments (11) | Send Message
     
    i'm in the "tweaking" corner on this. Does it make any sense to have this RTW format become an active, multitasking headset?
    28 May, 05:57 PM Reply Like
  • TimmiesRegular
    , contributor
    Comments (838) | Send Message
     
    @theantihero - while not specifically in response to your post, I was simply pointing out what any musician knows - you can't make money in this business without a business partner who knows what he's talking about.

     

    Iovine is a music industry legend having worked with John Lennon and Bruce Springsteen. He is the founder of Interscope and has some of the biggest names in music on his roster i.e.: Eminem, Fergie, Phillip Phillips, Maroon 5, Lady Gaga, Dr. Dre, OneRepublic, etc. Interscope is the number one music company in North America by radio airplay.

     

    He knows how the industry works and is already rich beyond belief. While I'm sure he's happy with selling to Apple for some significant money, he is already worth almost $1B, so now it's a bit more.

     

    Music streaming is taking over downloading - Apple will monetize this by signing the artists to their streaming service and cut out everyone else. This will be the easiest money they make - you want listen to any of the 100 artists that already work with him, then you'll need to sign up. Apple will bring musicians directly to 800 million users. They will be the music industry standard and Sony, et al will be standing in line to get on their service.

     

    Yes it will cost more, but I can guarantee that the days of free or cheap streaming are over and you'll only get the best artists from Apple. Sell Spotify and Pandora before it's too late. The current streaming business model is broken and even Bette Midler is complaining - after 5,000,000 played songs, she earned $143. The music industry will run to Apple, not walk.

     

    In case you doubt me on this, Steve Jobs did the same when he launched iTunes - whatever Apple comes up with next will be the standard. It's only a matter of time and Apple has the resources, tools, technology, reputation and now the people to pull this off. That's how they'll monetize it.
    28 May, 07:42 PM Reply Like
  • phxcrane
    , contributor
    Comments (415) | Send Message
     
    Then pay him a salary!
    28 May, 07:50 PM Reply Like
  • Andrew A
    , contributor
    Comments (116) | Send Message
     
    Spotify is shaking in their boots.
    30 May, 08:32 AM Reply Like
  • duhaus
    , contributor
    Comments (308) | Send Message
     
    Well the round of "will the deal happen or not" speculation has now closed. Get ready for the next huge surge of "analyst" articles claiming that the Apple/Beats deal is good/bad . . yawn . . I think I'll just roll over and sleep through the noise.
    28 May, 04:58 PM Reply Like
  • a alto
    , contributor
    Comments (122) | Send Message
     
    Please someone just explain to me how every person in the worlds last name is spelled with a capital letter ,except Jimmy Lovine ? It felt good to spell his last name correctly ,media is so lame.
    28 May, 05:03 PM Reply Like
  • phuettner
    , contributor
    Comments (17) | Send Message
     
    Go away troll. His last name does not begin with an L it begins with an I.
    28 May, 05:14 PM Reply Like
  • PandaBearish
    , contributor
    Comments (26) | Send Message
     
    His name is "Iovine"... "I" as in India.
    28 May, 05:15 PM Reply Like
  • MJ Pragmatist
    , contributor
    Comments (103) | Send Message
     
    We'll see if this deal "beats" or not. So far most of Apple's acquisitions have really been under the radar.
    28 May, 05:07 PM Reply Like
  • GDATL
    , contributor
    Comments (6) | Send Message
     
    It's not iOvine? I thought that was why he was such a good fit for Apple.
    28 May, 05:13 PM Reply Like
  • SgtSally
    , contributor
    Comments (32) | Send Message
     
    Beats sound technology is vaporware as far as I can tell. It sounded muddy and bass heavy on my new HP computer so I took it off along with all the other junk. The headphones are super premium price...I was not blessed with super premium ears so will not indulge.
    The streaming service? The radio is free!
    28 May, 05:20 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1075) | Send Message
     
    "Vaporware" does not mean what you think it means.

     

    Radio is terrible if you actually want to hear music.
    28 May, 09:14 PM Reply Like
  • szeducate
    , contributor
    Comments (78) | Send Message
     
    There are two important things to take away from this deal.
    First, Apple is paying only $2.6B up-front. This is only twice what Beats brings in each year. That is a remarkably low margin in buying a business.
    Second, Apple will sell the Beats brand, online and in many overseas markets. That will greatly expand the Beats name and bring it in revenue in a very short time of several billion dollars to Apple's bottom line.

     

    Overall, I think Apple made a good purchase. Of course, time will tell, but give Cook some credit on what appears to be a smart trade.
    28 May, 05:20 PM Reply Like
  • joro_ianev
    , contributor
    Comments (378) | Send Message
     
    "Second, Apple will sell the Beats brand, online and in many overseas markets. That will greatly expand the Beats name and bring it in revenue in a very short time of several billion dollars to Apple's bottom line."

     

    Yeah, Beats brand is recognized the world over and it is just a matter of distributing in more countries. Sarcasm. The price is too high for an over-priced headphones and a streaming service only 100 k people are using.

     

    Apple (like Intel) has a poor track record for realizing value out of its acquisitions. It is much better-known for its internal innovation.
    28 May, 05:43 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1075) | Send Message
     
    "Apple (like Intel) has a poor track record for realizing value out of its acquisitions. It is much better-known for its internal innovation."

     

    Where on earth did you dredge up this nonsense? Do you even know who they've acquired and what they've done with those companies?
    28 May, 09:18 PM Reply Like
  • diaboliqueguan
    , contributor
    Comments (252) | Send Message
     
    Someone claimed the cost price of a Beats headphone is $14.50 and sold for $400. When AAPL makes it only exclusively to be sold in AAPL stores and websites around the world, can you imagine the profit margin for AAPL's balance sheet?
    29 May, 05:32 AM Reply Like
  • dgulick
    , contributor
    Comments (1348) | Send Message
     
    "We love the subscription service that they built—we think it's the first one that really got it right." -Tim Cook

     

    Wow! Anyone else think Tim is completely out of touch? Despite Beats rather brilliant partnering with AT&T and a massive ad spend (Superbowl/Olympics commercials, etc), Beats has only attracted 111k subscribers!!! (compared with Spotify 40M listeners, or Pandora's 76M listeners at 23hrs/ea/month). I've used them all, while Beats Music will undoubtedly improve that's only because, in its current state, it couldn't be much worse!!
    28 May, 05:28 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1075) | Send Message
     
    You do realize Beats is 4 months old compared to Spotify and Pandora which are... 7 years old?

     

    Makes this sort of comparison nonsense.

     

    Not that 100k is great, just the comparison is silly. What was Pandoras uptake in the first six months? How about paid only?
    28 May, 09:22 PM Reply Like
  • omnimoeish
    , contributor
    Comments (468) | Send Message
     
    On the other side of that coin, 4 months old is too young to tell if it's been done right or not.
    29 May, 03:15 AM Reply Like
  • Dennis Baker
    , contributor
    Comments (1075) | Send Message
     
    A quick correction, Iovine has said Beats subscriber count is about 250,000. A pretty sizable gap from the 100k estimate that's been floating around.

     

    Yeah, I agree, way too early. We won't know if this was a great acquisition for months or maybe years to come. Big step out from their play book.
    29 May, 04:36 AM Reply Like
  • dgulick
    , contributor
    Comments (1348) | Send Message
     
    @Dennis Baker,
    I'm not so sure it is too early to tell (250k is still fairly slow adoption relative to continuing growth rates for Spotify and Pandora). A look on AppAnnie shows Beats continuing to struggle: http://bit.ly/1muUBdH http://bit.ly/1muUBdH There are just far better services out there at this price point (Spotify, Rdio, Google Play All Access) or free! (Pandora). The reason Beats struggles is due to what is noticeably absent, i.e., a playlist generator, despite Beats attempt to spin this with their human curation tagline, something even Tim Cook parrots back about the deal: "They had the insight early on to know how important human curation is. That technology by itself wasn’t enough — that it was the marriage of the two that would really be great..."

     

    Don't get me wrong, I think this is a positive for Apple, they get Iovine and Dre (don't underestimate the value of connections within the music industry, inking royalty deals has been a nightmare for the streamers), Apple also gets a fledgling on-demand streaming service that they can integrate with iTunes Radio, and they get the coolest bulky headphones that I think will provide an entry point for Apple's wearable tech aspirations.

     

    But Apple's lock on digital music, which had already been waning at the hands of Pandora and Spotify, is now over with this deal. Prior failed attempts by Apple's competition to gain a toehold in the music space is now an easy Pandora or Spotify acquisition away.
    29 May, 09:22 AM Reply Like
  • gelstretch
    , contributor
    Comments (811) | Send Message
     
    Whoo-hoo...... This is a game-changer !!! Apple now has crossed over the line, and will likely be looking at more "dynamite" acquisitions that will give longevity to the brand. as well as the growth potential for the future of the enterprise.

     

    As a stockholder, I am thrilled !
    28 May, 05:32 PM Reply Like
  • jdadyfinance
    , contributor
    Comments (92) | Send Message
     
    Deal makes perfect sense just not to the "experts" on Wall Street. Apple brings a brand and talent into the company that is at the heart of popular culture. All I hear is the pundits bashing the deal as too expensive and the Beats hardware as not up to Apple quality which is the same argument I hear about the iphone in some camps. What I say to that is so what! Ever hear of Beta Max or Lader disk ? If having the best "quality" was the most important metric then why do I see Beats headphones all over the place with iPhones hanging off them ? This is a great move and Apple needs to get into streaming without nuking iTunes and this deal checks off many boxes!
    28 May, 05:47 PM Reply Like
  • milehr
    , contributor
    Comments (475) | Send Message
     
    I will join any lawsuit against this deal.
    28 May, 06:20 PM Reply Like
  • Paul42
    , contributor
    Comments (12) | Send Message
     
    Do you own any shares of Apple or only shares of Blackberry?
    28 May, 09:47 PM Reply Like
  • milehr
    , contributor
    Comments (475) | Send Message
     
    Of course, I own shares of Apple, or why would I care? Is Blackberry going into recycling business too?
    29 May, 05:03 PM Reply Like
  • Andrew A
    , contributor
    Comments (116) | Send Message
     
    Spend your money on Apple stock.
    30 May, 08:33 AM Reply Like
  • WisPokerGuy
    , contributor
    Comments (777) | Send Message
     
    The above comments on this purchase are pretty funny. $3 Billion? Who cares? For Apple, that amount of money is like what the rest of us find under our couch seat cushions. I assume that Apple's management team has some logical reason for making this purchase? That they just didn't say one morning "let's throw $3 billion out the window and see what we hit". Therefore, with the amount of cash Apple is carrying on their balance sheet, it's basically peanuts. Who really cares? Apple will make this up in about two weeks. So chill out. The ONLY two really important things for Apple is how well the iPhone 6 refresh cycle will go and any new product intorductions. Everything else is meaningless drivel.
    28 May, 06:41 PM Reply Like
  • Ashraf Eassa
    , contributor
    Comments (8816) | Send Message
     
    $3 billion relative to a net cash position of about $150 billion is not "under the seat cushions" money.

     

    If you're worth $1 million, are you likely to find $20k under your seat cushions? If so, I'm happy to announce that I will be offering couch cleaning services for high net worth clients.
    28 May, 08:20 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1075) | Send Message
     
    You are nitpicking and you know it.

     

    The deal is small enough that even if it completely fails to deliver any value over the next 5 years, shareholders will not notice the loss. This is doubly true since its an overseas acquisition which does not require repatriating the money.

     

    Few people batted an eye when Google paid more for an unprofitable widget maker. Facebook paid more than 6 times as much for a nearly revenue-less messaging service.

     

    On the scale of these things, it's a relatively minor deal.
    28 May, 09:37 PM Reply Like
  • Andrew A
    , contributor
    Comments (116) | Send Message
     
    Less than one half of their market cap. What do you spend a half percent of your net worth on?
    30 May, 08:35 AM Reply Like
  • jdadyfinance
    , contributor
    Comments (92) | Send Message
     
    Well said WisPoker
    28 May, 06:56 PM Reply Like
  • faramarz
    , contributor
    Comments (240) | Send Message
     
    Apple pays 2.6b for a company with 1.3b revenue with high margin comparable to iphone's. If the gross margin is comparable to Apple's (+/-38%) the beats revenue will add a net 0.286b (22%) to Apple's bottom line. 2.6b cash would have earned 2% for Apple. That is 0.046b or 5 times less than the earning from Beats.
    28 May, 07:03 PM Reply Like
  • Doc's Trading
    , contributor
    Comments (594) | Send Message
     
    AAPL.....AAPL.....Pred... that apple will sell at below 100 by June 9th....
    I guarantee it!! :-)

     

    (7:1 split remember?) ..... Stock today made a reversal. My rule is that it must close above today's closing within 3-5 ( 624.01) to maintain its bullish direction. If not a consolidation or technical correction is probable.

     

    Support is at the Fibonacci 68.2 recovery high from the top at 700 to the low in the high 300's (385= 415 point decline) which was 590. Also breakout of the reverse head and shoulders bottom formed for nearly a year was 600-605, which should now be major support as well.
    My recommendation is now to wait and see how she reacts the next 10 days. Perhaps she will tip her hand as to direction... as of now she is range bound.

     

    *****REMEMBER what I have pointed out three times already in this forum, that every expiration Friday she is moved sharply higher in the last hour of trading. (average has been over 10 points from the low made that day. This would be the 7th Friday in a row if it happens again.

     

    Expect the same this Friday..... Suggest you high profile betters can buy some expiring out of the money calls Friday morning (when the stock usually exhibits some weakness) risking very little (suggest buying some 2 1/2 point OOM call spreads in AM.) If they take her again you make a terrific percentage for one days trade.
    more later........
    28 May, 07:12 PM Reply Like
  • TechKurt
    , contributor
    Comments (3) | Send Message
     
    Apple bought a second brand. It makes long term sense. That's a strategic move which requires some more investment but was necessary. Mergers bear risks. The question is if the two completely different business cultures fit together. I think chances are good. I'm now long again.
    28 May, 09:48 PM Reply Like
  • Ron Alwin
    , contributor
    Comments (53) | Send Message
     
    great deal!!! three reasons (1) Samsung has been very busy @ events trying to garner people away from ios ...music festivals / club parties / etc..trying to get the teens + young adult crowd...you know the people that wear beats headphones or the hipsters etc...Apple doesn't do these things...but is aware it's happening i'm sure...Apple sells beats at their stores...they know people choose them over the higher quality sets and pay more for less quality...Now Apple see's the market and has choices...develop their own headsets...which no doubt would be cool and better quality...but then their competition still holds a large crowd who simply like the different cool factor of beats....with ipods becoming less of a revenue source and knowing these headphones have a great margin...plus with apple engineering, who knows what they have up their sleeves for headphones in the future.
    (2) If my memory is right i believe Jobs worked with Iovine to get artists and labels to work together with itunes on early adoption...how did that work out for apple..well we all know it was a winner.
    (3) the steaming thing...let's face it Pandora's system outperforms Apple...i've used both...but Cook believes beats has found a grail...well i'm behind him..with apple engineering helping I'll get behind this idea...after all as much as people like to bash Cook...Jobs was not a fool and from what i've seen Cook is not arrogant and does value Apple and it's shareholders.
    28 May, 10:45 PM Reply Like
  • sungura2005
    , contributor
    Comments (41) | Send Message
     
    A P/S of 3 for a booming high margin business is not bad. What Apple is doing is what Wal-Mart does overseas. They buy popular supermarkets but don't change the name.
    29 May, 02:35 AM Reply Like
  • omnimoeish
    , contributor
    Comments (468) | Send Message
     
    This money should've been used to buy Netflix. There's no way the world will not be exclusively reliant on demand streaming service inside of 10 years. Time is slipping away for Apple to write a check and get in people's living rooms (at least not without writing a really really big check that Tim Cook doesn't have the cojonjes to do). The iTV set is not coming (Jobs said they'd never make a TV) and the AppleTV set top box is not going to catch up to Netflix. In 10 years Beats will probably be remembered as a fad that Apple bought into when they started going all Microsofty with their acquisitions always buying fad hype based products like the Kin and watching billions of dollars vaporize when they can't monetize it and everyone forgets about it soon after it's purchased.
    29 May, 03:25 AM Reply Like
  • diaboliqueguan
    , contributor
    Comments (252) | Send Message
     
    Brian Blair has already mentioned that he saw a prototype of Apple TV in Taiwan, though not commenting on production.
    29 May, 05:34 AM Reply Like
  • marcparrilli
    , contributor
    Comments (11) | Send Message
     
    there's still time.
    29 May, 12:25 PM Reply Like
  • u01bsb0
    , contributor
    Comments (616) | Send Message
     
    Seems like people are making more of a fuss about Apple overpaying for Beats than Facebook overpaying for Whatsapp. Even though Whatsapp was bought for $18b compared to Beats $3b, and Beats makes more profit.
    29 May, 04:26 AM Reply Like
  • wjames0900
    , contributor
    Comments (26) | Send Message
     
    Steve Jobs was always against the idea of renting of music, but I think the dynamics of the music industry are changing rapidly. Spotify, Pandora and Google Music have changed the way this industry used to operate. I think this "acqua-hiring' is a good move from Tim. Beats is still a nice and Apple will use the vision and experience of Iovine and Dre to bring new things into the space. http://bitly.com/1rjVTz1
    29 May, 08:51 AM Reply Like
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