Apple's Potential $3.2 Billion Deal Works

Apple buying Beats Electronics makes more sense than you think.

May 11, 2014 at 1:30PM

This could be the week that Apple (NASDAQ:AAPL) makes its $3.2 billion deal for Beats Electronics official. It's easy to see what the market thinks about Apple's potential to strike a 10-figure deal with the headphones maker: Apple surrendered more than $2 billion in market value on Friday after the reports surfaced. Either investors think the consumer-tech giant is overpaying for Dr. Dre's company, or they just think it's a bad move.

I don't see it that way. Sure, it's true that Carlyle Group (NASDAQ:CG) paid roughly $500 million for a nearly 50% stake in Beats back in September. The transaction implies that Apple is paying more than three times what Beats was worth just eight months ago. That's hard to swallow, but let's not assume that Beats would have taken $1 billion for the entire company just because it sold half of it at half that price. Carlyle Group will score a massive profit topping $1 billion if this deal goes through, but it's not as if Apple could've written a $1 billion check for the entire company. Sometimes a company just isn't for sale.

Moving on from Carlyle's transaction, a lot has happened since September. For starters, that was the month that Apple introduced iTunes Radio. The platform was supposed to be a response to the growing transformation in the way we consume music. We're seeing iPod and iTunes Music Store sales shrink, as connected devices make streaming more desirable than outright ownership. Label executives tell Billboard that iTunes download sales have fallen 15% over the past year, with Apple's online store going from accounting for 70% of music sales in 2012 to just 50% these days. 

Apple bulls will argue that digital music is small potatoes. There's a vibrant App Store ecosystem that is growing nicely as iPhone sales continue to grow. We're seeing iPad sales stall, but the installed base continues to grow, feeding into Apple's app-serving strength.

However, it's too soon to abandon music. We're consuming more tunes than ever, and that creates a market for accessories and on-demand music services where Apple has been unsuccessful. Beats' signature headphones, earphones, and Bluetooth speakers give Apple a way to cash in that isn't tethered to its dwindling share of the global smartphone and tablet markets. Yes, Beats is in a peculiar way on play on Android's success.

Then we have Beats Music. Beats introduced its on-demand streaming platform in January. Unlike iTunes Radio, where listeners can't pick the actual tracks that they want to stream, Beats Music follows Spotify into actual track selection and composing playlists. Label execs say that Apple's iTunes Radio has been unsuccessful in drumming up sales, so it may as well give premium on-demand streaming a shot. Securing these licenses hasn't been easy, and that makes Beats Music an easy way to dive into this growing niche. 

Beats Music itself has been struggling. Record labels are seeing unimpressive migration rates despite a big marketing campaign earlier this year that included a flashy Super Bowl spot. Beats Music can benefit from Apple's reach, just as Apple will benefit from selling Beats' high-margin hardware. 

It's a deal that makes a lot more sense than Friday's skepticism suggests. When you have as much money as Apple, the only real mistake would be simply letting its stateside cash just sit there collecting interest in this low-rate environment. This will be $3.2 billion worth spent if it's what Apple ultimately decides to do.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 


Rick Munarriz owns shares of Netflix. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers