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

Spending $3.2 billion on Beats by Dr. Dre isn't as crazy as it first appears if you're Apple.

May 9, 2014 at 3:30PM

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 Pillsm

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. 

Travis Hoium manages an account that owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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