Apple-Beats Electronics Deal Spices Up a Slow Day on Wall Street

U.S. stock markets are all just a bit over breakeven in late trading Friday. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been up and down all day and is up 0.1% as of 3:30 p.m. EDT.

There's not much in the way of economic news today, and earnings from most of the largest companies on the market were reported last month. So we're just seeing a slow sell-off, partly helped by Dallas Federal Reserve Bank President Richard Fisher saying quantitative easing could be over by the end of October. Long term, that's a good thing because it means the economy doesn't need continued stimulus, but taking the safety net out can be unnerving for some investors.  

One notable headline today is Apple's (NASDAQ: AAPL  ) rumored acquisition of Beats Electronics, the popular headphone maker and streaming music service co-founded by famed rapper Dr. Dre.

Beats Pill is one of the company's most popular products. Source: Beats Audio.

Rumors began swirling last night that Apple had agreed to pay $3.2 billion for the company, which already has its headphones displayed prominently in Apple stores. Apple investors haven't responded kindly to the news, taking the stock down 0.6% today, more than the value of the deal, but there are reasons to like the acquisition.

As Apple moves further into connected devices within the home and the living room, the Beats brand will bring products, technology, and cache to these new products. Its speaker products connect wirelessly to iPhones and other devices, something Apple is expanding rapidly through its devices with AirPlay.

There's also a branding attraction since both companies play to the high-end, high-margin part of the market. There are product synergies from a sales and even development standpoint.

The $3.2 billion price tag may seem hefty, but the Beats website says the company owned 51% of the $1 billion premium headphone market back in 2012. Since then, it has expanded its partnership with Apple, and I wouldn't be surprised if the deal adds to earnings immediately.

Many in the media are scoffing at the idea of Apple buying Beats, whether it's due to the price tag or the products it's buying. I think a longer-term look will show that Apple is adding more devices that connect to each other and being a major player in all parts of the music market is part of that strategy. That's why I think this would be a good deal for Apple.

Apple's new target market
What Apple is going after with this acquisition is the $2.2 trillion media market. Currently, cable grabs a big piece of it and Apple is positioning itself to grab part of the pie. Our analysts have found three companies poised to benefit. Click here for their names. 


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