Apple Takes A BEATing

Unless you’ve been under a rock, chances are you’ve heard about the workings of the potential deal between Apple and Beats by Dre. This news has gone viral, specifically in the Hip Hop community. If all goes according to plan, the Hip Hop World will be able to congratulate Andre Young ( B.K.A Dr. Dre) for becoming it’s 1st official Billionaire. Kudos to Dr.Dre and founding partner/CEO Jimmy Iovine for taking a company built on such a specialized product, not necessarily aligned with Apple’s lineup, and making the unfathomable happen. Unfortunately, while many celebrate, just as many are criticizing. We know that Dre will benefit greatly from the deal, with expected $3.2 billion in revenue from selling Beats Electronic LLC. However, some are less confident that the deal’s impact will be as positive on the Apple Brand. There are quite a few financial experts who have been very vocal about their disapproval.



According to Forbes article “Apple Beats Deal is worst Tech’s Acquisition, Except All Others,” some believe that Apple should be pursing Monster Cable, as previous manufacturer of Beat hardware. Others argue that Beats underlying value is well below the $3.2 billion price tag. “I cannot do the math on that offer. Nothing that I can compute adds up to $3billion,” says well-respected analyst James McQuivey. Om Malik, founder of GigaOm, hasn’t been shy about sharing his thoughts either. He recently tweeted “Google spends $3.2 billion to buy the future & data. Apple buys bad headphones & a junk-service from music promoters. Worse use of corp $$$s.” Sounds like a bit of jealousy if you ask me. Whether envy or simply “hate”, the destructive words of these individuals and pessimists are being reflected through Apple’s stock price. Just when we were starting to see some upward movement, AAPL decreased by 1%, closing at $585.54 on Friday 5/9/14. Despite negativity around the arrangement, there are several reasons this is a logical step for Apple.

Established in 2008, by Hip Hop Legend Dr. Dre and Co-founder and CEO Jimmy Iovine, Beats Electronic LLC offers a line of premium quality headphones, earphones, speakers, as well as a slew of other audio devices. Some argue that the correlation between the product line of Beats and Apple is unseen. But the product that can make this acquisition sensible and quite a strategic maneuver is Beats’ streaming music subscription, Beats Music TM. Apple believes that gaining complete creative and technological control over Beats and its streaming ability is an investment into the future. Not to mention, an investment into a product that has proven to be lucrative (tripling value in a 3 year period) and inexpensive for Apple. Bloomberg reports that Apple has $150.6 billion dollars in cash and investments. Although the purchase of Beats will be one of Apple’s largest, they certainly can afford it. Apple can’t possibly expect to see too significant of a jump in overall revenue, because of the size of the transaction in scale to their organization as a whole. However it is a move in the right direction. Eventually, I think they will continue down this path and continue to invest large cash reserve; One step at a time of course. To this point, nothing has been finalized. The details are still “in the works” so to speak. We’ll have to keep our ears open to see what’s to come of this deal and how the market will react.