Wall Street Baffled by Beats Deal, Apple Stock Down

When the news broke yesterday that Apple was rumored to be in negotiations to purchase the Dr. Dre and Jimmy Iovine founded Beats Electronics, the big headline was the $3.2 billion price tag. While Beats is certainly an enormously valuable company, that’s an awful lot of money and it would be the priciest acquisition of a company by Apple in the company’s history.

While the Hip-Hop world is largely focused on the prospect of Dre becoming Rap’s first billionaire, Wall Street and Silicon Valley seem to be somewhat confused as to why Apple would be willing to sink so much capital into a business that they don’t really need. Apple is one of the most profitable companies in the world and they currently control the biggest digital music marketplace on the planet in iTunes.

So what does an acquisition of Beats give them that they don’t already have? Beats headphones are hugely popular, but they are also widely regarded as woefully overpriced and middle of the road as far as sound quality. They just launched the Beats streaming music service, but it’s largely unproven at this point and the subscriber base is believed to be well under 1 million users.

Here is Gene Munster of asset management firm Piper Jaffray on the proposed merger, via Mashable:

“We are struggling to see the rationale behind this move,” Munster writes in his investor note. “Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake.”

Information Week writer Eric Zeman points out that HTC shelled out 350 million for half of Beats a couple of years back and that didn’t exactly work out well for them:

HTC added Beats’ sound processing technology to its handsets, and sold some smartphones with Beats headphones in the box. That story didn’t end well, however. HTC was eventually forced to sell back its share of the company to Iovine. Given HTC’s long slide towards oblivion, it’s fairly obvious that adding Beats’ brand to its own didn’t help HTC sell any phones.

He goes on to note that if the Beats streaming service is what Apple is really after, they could end up having to renegotiate all of their licensing deals with the major labels as a result of such an acquisition. Then there is the matter of Beats $1 billion dollar vaulation. Many analysts just don’t believe the company is worth that much.

All of this confusion and uncertaintly has already spooked Wall Street: Apple’s stock price was down 1.2 percent today.

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15 Responses to “Wall Street Baffled by Beats Deal, Apple Stock Down”

  1. tC DiBiase Says:

    the reason why Wall Street is confused is because like me, they didn’t see the value in a headphone/streaming company. As an audio engineer Ill be the first to say there are far better headphones than Beats by Dre BUT as an audio engineer in a recording studio I can also say – every artist and aspiring artist uses Beats by Dre. I myself fell victim to this by purchasing the $450 “Pro” headphones.
    Beats is a billion dollar company.

  2. 7v5a7 Says:

    Good insight Eskay…something is not adding up

  3. spirit equality Says:

    1) ITunes Radio flopped and Beats Radio appears to be a better platform
    2) Apple has all the tech resources they need to improve the quality of Beats. If they can corner 65% of the headphone market with headphones that critics have slandered mercifully, they could probably corner 75-80% of the market if Apple can dramatically improve the quality
    3) iTunes sales are trending down while streaming is trending up, if they get the Beats Radio model scaled properly, they can make up for any losses on the iTunes end
    4) Beats also does sound systems for cars and Apple was looking to launch car platforms…good synergy there (I can’t speak on the quality of Beats car audio systems, though)
    5) Apple hasn’t failed in an acquisition yet. Wall Street skews older and white. Of course they don’t get it. They’ll figure it out, in time. I’d advise you to grab some Apple stock because it’s going to rebound 1.2%+ in the near future.

  4. spirit equality Says:

    ps: Apple is so much better of a tech company than HTC that it’s almost blasphemy to mention them in the same sentence.

    pps: iPhone 6 in August. I’m calling Beats by Dre earbuds as an included accessory now.

  5. King Yeezus Says:

    Trill Clinton needs to comment on this

  6. eskay Says:

    >>iTunes sales are trending down while streaming is trending up, if they get the Beats Radio model scaled properly, they can make up for any losses on the iTunes end

    this makes the most sense to me, but what doesn’t add up is, why doesn’t Apple just invest more resources in iTunes Radio? Beats streaming is not even a factor in the streaming space next to Spotify and Pandora, and I can’t imagine there is anything that they are doing now (from a technology standpoint) that Apple couldn’t do better if they really focused their resources and expertise. Certainly nothing worth 3.2 billion. I suppose when you add in the headphones business, it might add up, but it seems like a gamble.

  7. spirit equality Says:

    >that Apple couldn’t do better if they really focused their resources and >expertise

    Silicon Valley has a long tradition of just buying talent rather than building up departments in-house. If they figure Jimmy and Dre have cracked the code in streaming, they won’t even bother to re-invent the wheel, they’ll just buy Jimmy and Dre’s wheel factory. If Tim Cook and the gang can scale Beats Radio to take a nice piece of the listeners from Pandora and Spotify, Cook will have a statue of himself erected at 1 Infinite Loop.

    I think Spotify and Pandora aren’t as bulletproof as Wall Street thinks they are. Jimmy + Dre + Tim Cook = game changer, if you ask me (also, throw in Trent Reznor, who is – on the low – a damn genius and also rolling with the Beats conglomerate).

    I wonder how this will inspire 50 to make a counter-move? Sell SMS to Dell? Ha.

  8. cOLD Says:

    I wonder how this will inspire 50 to make a counter-move? Sell SMS to Dell? Ha.

    ^ ether.

  9. eskay Says:

    >> If they figure Jimmy and Dre have cracked the code in streaming

    but as far as we can tell, they have not. obviously Tim Cook is a smarter guy than me, and I’m sure they know something I don’t.

  10. No shots, like stray dogs Says:

    King Yeezus Says:
    May 9th, 2014 at 2:48 pm
    Trill Clinton needs to comment on this

    > Lol. wow.

  11. A-1 Says:

    Yo b aka casketface aka f you pay me aka brolic fonts aka yeah I know exactly who you are, you should be very weary about coming around these parts. You dont want these problems faggot face.

  12. Stot Says:

    Yeah, remember when troubleshooter said it was one person behind all the faggotry and fuckery. It was that one faggot. We see you, fuck nigga.

  13. King Yeezus Says:

    Beats by Dre is a brand name and everyone knows what they are I mean everyone

    I love my Red Studios to death

  14. King Yeezus Says:

    Beats by Dre commercials are a great way for Interscope to move their artists songs just look at Aloe Blacc’s I’m the Man for example the song damn near blew up because of that commercial

    They have the advertising game on lock much like Apple

    Hell look at LeBron and them before and after every game same with every NFL game free publicity even though some players like LeBron are endorsed by Beats

    Hell even go to your local gym Beats are everywhere

  15. TS-LTE Says:

    Beats been jumping out the gym since it’s arrival.

    Car Audio

    Fuckin’ Andre Young.

    *Claps for him*

    I hope he’s keeping a small steak in the franchise. I think his steak now is a little over 20%.

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