Wall Street

Judging by a roundup in The Wall Street Journal, analysts and investors appear not to share the enthusiasm for Beats acquisition express by Tim Cook and Eddy Cue. While Cook said he was “excited [...] about this new chapter in our history” and Cue believed that “combining the two companies will help [music] grow again,” Wall Street is more skeptical.

“To see this kind of money spent for a company that gets most of its revenue from hardware business is not what we want to see,” said Dan Niles, chief investment officer of hedge fund AlphaOne Capital Partners …

Patrick Becker Jr., portfolio manager at Becker Capital Management, was equally blunt.

“We never like to see a company buy something for $3 billion when a few months ago it was worth about $1 billion [based on the valuation when private investors bought a piece of the company in September]. We wonder whether this is an appropriate use of shareholder cash.”

Most acknowledged that Apple needed to develop its streaming music business and sign content deals for TV, and that Beats Music and Iovine would help, but didn’t see the partnership as a game-changer.

“Streaming music is a way more interesting space to dominate compared to big ass headphones but buying Beats isn’t going to get Apple there,” said Josh Stewart, portfolio manager of the Wasatch World Innovators Fund.

Benedict Evans, partner at venture capital firm Andreessen Horowitz, agreed.

“Iovine joining Apple can’t hurt. But this won’t make the difference between unbundling HBO from a typical pay TV package and not being able to do it. People in Hollywood do not give deals to people because they like them and know them.”

It will be interesting to see whether these views change once we get a good sense of what Apple has planned.

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63 Responses to “Wall Street unimpressed by Beats acquisition: “Not what we want to see””

  1. joshalfie says:

    If Wall Street doesn’t like something that Apple does it usually means that the company is on the right track.

    • So very, very true. Wall Street investors are driven by nothing but instant profits. Take the average investor and offer him or her the choice between 1 dollar now, or 3 dollars in 3 days, and they’ll take the single dollar each and every time. It’s instant cash they can’t resist because that’s all they know.

      It’s the reason they call themselves “Shareholders” or “Stakeholders” instead of “Investors”. Investing in something takes time and patience before you realize profits or dividends. Shareholders and Stakeholders are entitled to the money right now. A farmer INVESTS himself and his resources into the land and livestock to yield crops & meats to feed his family. A shareholders is the douche that doesn’t want to be bothered with any of this to the point where they won’t even get off of their phone to order a hamburger in the drive-thru, and then continue to berate employees simply because they can.

    • aeronperyton says:

      I’m not even going to bother to read the rest of the comments. Article over, good job sir.

    • And boom goes the dynamite!! Brilliant comment!! Just brilliant.

      Since Wall Street analysts don’t actually do anything except scream “buy” and “sell” all day while spending other people’s money I don’t think they’re in the best position to make opinions about what a creative company like Apple will do with Beats.

      And last I checked, Beats opened their doors in 2008. To be worth $1 billion that quickly is quite the feat and the fact that the Beats name is on HP computers and a few HTC phones their future path was looking better and better.

      And in this day and age it would only be a matter of time before Google or Facebook bought them out and it probably would’ve been for even more money.

    • driverbenji says:

      +1 …these people have no idea how to run a business long term. …and, perhaps they are invested into other markets that stand to lose from this merger.

    • vinoeticblog says:

      +1 Yep. It is usually the case. Wall St. = Legalized gambling. They’re trying to count cards and playing against a much smarter player.

  2. Do what Wall Street doesn’t want to see is 100% right. xD

    • That’s crap. Beats makes the worst ear phones in the planet. It’s bad enough that Apple fans are accused of having more money than brains because of the misconception that we’re willing to pay a premium price for otherwise commodity hardware, but Beats really is crappy hardware ($17 per head phone) being sold at an outrageously high price ($100+). Apple could have purchased a real quality product (i.e. Bose, Fender) instead of paying the ridiculously high price of $3B for crap.

      • I’ve read Bose is terrible too, so right off the bat you have no idea what you’re talking about. However, the quality of the headphones is 100% irrelevant because Apple wouldn’t dream of putting their name on something that is jenuinely bad. If they use Beats branding in any products you better damn well believe they will have improved them unimaginably.

      • That’s nothing compared to Google Glass parts totaling less than $100 and retails for $1500. I got the new Beats Studios and they are fantastic. You may need to see the Doc about your ears.

      • @ o0smoothies0o, Actually, I put my money where my mouth is. I own a pair of Bose noise canceling headphones, two cars with Bose sound systems as original equipment, a set of Bose Acoustimass theater speakers, and Bose Companion 2 PC speakers for my workstation. Oh and have you seen the list of auto manufacturers that use Bose sound systems. But hey, you “read” that Bose speakers are bad. Regardless, I also include a list of other premium sound system manufacturers that would give Apple traction in the market. Fender has been developing car sound systems for several years now. The name along with fact that they have a small market means Apple could purchase just the sound system parts of the business and keep the premium name.

        And one last tid-bit for you. HP has made Beats the center point for their laptop marketing strategy. If you don’t think Wall Street knows anything about what Apple should do, are you saying that HP does?

      • Daniel, Daniel, Daniel. Oh, we just have to say this again. The Beats headphones may be “crappy”, but still control some 60% of the headphones market (according to reports). Imagine, if they can just improve the acoustics. As “bad” as they are today, they still have the largest share of the market. Apart from the headphones, Beats come to Apple with other things in its bucket – other things that companies having better headphones do not have. Again, I have to ask, which is better and easier for Apple, buy the Beats who already has the greatest market share in headphones AND develop them to premium levels, or buy other companies that have “premium” headphones but 5% of the market (and nothing else in their bucket to offer Apple)?

      • At one time Windows owned well over 60% of the PC OS market. By your logic, that’s the best brand. If Apple is the marketing juggernaut that it’s supposed to be, then they could have grabbed gobs of market share with another premium brand. We know from their own head phones that they know little or nothing about sound quality. So how does Beats help them. And their music streaming service is tiny compared to Apple’s own radio service which just claimed to have 10 million users.

        How about this idea for you. The iTunes store makes $1B per year for the music industry. Why doesn’t Apple just give the music industry $1.1B per year so that any Apple product running the most recently released iTunes application can stream any song in the store, completely free. Users won’t copy the files, just stream the audio to their Apple device. The music industry would have a 10% bump in revenue, and no smart phone or other phone manufacturer could offer that. And with Apple’s profit margins, they could easily eat the cost.

        Now let’s say Apple does this for the next three years using the money they would otherwise spend on Beats. How much larger would Apple’s market share become for phones, tablets, or desktop PCs and would this increase in market share more than pay for additional years of unlimited digital streaming?

      • As a sound designer and audio engineer I have two phrases to live by. “No highs, no lows, must be Bose” and “JBL stands for Junk But Loud”. I’ve used many bose products and what they do is blast mid-range frequencies out as loud as possible while creating “faux base” through the cabinet construction. Their drivers are cheap and poorly made yet sold for a ridiculous price. I’m not defending Beats though. They are just cheap headphones with bass boost.

        If you want nice in-ears buy Shure, Ultimate Ears, or Westone. If you want over the ears, buy Sennheiser.

      • Okay, so what is the best set of sports ear phones I can purchase to use with my iPod while jogging that costs less than $100?

      • @Chindavon, Like Apple computers, the computers are only a good value when you incorporate the R&D costs in software. Google has worked really hard to develop software that makes Google Glass a useful tool. I don’t think $1,500 is a lot for that device. If anything, Google has the challenge of building a device that satisfies are very large and diverse set of users all at the same time. Had a small company developed those glasses, they could have focused on a very narrow market like medicine and then they would have had a greater chance of satisfying those users. And $1,500 would have been an amazing price.

      • Bose has exactly the same rep as Beats. Sound is ok, but they’re expensive and marketing-driven. Some people fall for the Beats hype. You fell for the Bose hype.

      • Yes, you are right. This link is pure hype:

        http://www.ieee.org/about/awards/bios/maxwell_recipients.html

        Oh yeah, I’m an IEEE member. So maybe I’m biased by the industry awards.

        @narciso, The Shure ear buds look like they have more rugged wiring. Would you agree?

      • I’m glad someone already pointed out that Bose and Beats are practically the same brand (overhyped with bad to mediocre sound quality). I personally like Bowers and Wilkins (for speakers mainly… But I like their new P7′s) and Sennheiser myself. =)

      • Ben Lovejoy says:

        I have the P5s and love them

      • Bose are bad too.
        Beats aren’t great, but they certainly aren’t the worse.

      • Air Burt says:

        This is all irrelevant cause Apple didn’t buy Beats for the headphones at all. Beats Music and Jimmy Iovine are the real prize here. The headphones are just another money maker to fuel their costs elsewhere.

  3. rogifan says:

    For once I actually agree with Wall Street. I think Cook and Cue should have done a better job explaining the why behind this deal and what the vision is. Are curation and Iovine’s “ear for music” really worth $3B? And is music really what Apple needs to be focusing on now? Sure they need a Spotify competitor but if they have to spend $3B to get it I think it reflects poorly on Eddy Cue. He said last night that Apple has been thinking about streaming music for a long time. OK Eddy, why has it taken you this long to bring something good to market?!?

    • Of course they should focus on music! Apple and music are indeed linked. From a marketing pov music is a huge deal. If people associate Apple and music more, that’s great.

      • rogifan says:

        Music is great but do you really think streaming music is the #1 thing Apple should be focusing on? I get the feeling Cook felt pressure to spend some of Apple’s cash, to do a big deal because all their competitions are. I think it’s depressing that Beats is all they could come up with. If Apple needs to spend some of its cash, how about better iCloud or memory pricing? How about 32/64/128 for the same price as 16/32/64?

      • jrox16 says:

        @rogifan
        How does spending a mere 2% of their cash on hand equal streaming being the #1 thing Apple is focusing on? Just because they acquire Beats doesn’t mean it’s a huge thing… It only seems that way since it’s being reported all over the place, in a few weeks we will forget about this and go back to iphone 6 leaks.

      • @rogifan Haha if you think Apple is pressured to do anything you are clueless… Also if you think Cook was just trying to spend money you are clueless. They don’t just go around blowing all their money on companies constantly. They buy what they believe will be beneficial in the future. Here is a good buy you might do well to remember: the fongerprint tech. They simply own fingerprint tech on smartphones, there is currently nothing that comes anywhere even close to it. Android’s implementation is a complete embarrassment. Trust their purchases.

    • Robert Nixon says:

      Apple has the manpower and spending power to focus on whatever they want. It’s like not the people working on the music end of things are the same people working on OS X 10.10 or the rumored iWatch, you know.

      As for the $3B price tag, I’m not sure why every armchair CEO thinks they have a better idea of the valuation of the company than Apple, who isn’t exactly known for overspending and has infinitely more insight into the inner workings of Beats than any outsider.

    • Rogifan, reports put Beats annual revenue somewhere between $900 million and well over $1 billion. So, how much do you think Apple should have paid for such a Company?

  4. Stop! Stop citing the nonsense that Wall Street spews all the time. Seriously, when is the last time that their opinion mattered and they predicted what was good for Apple? Probably never. We have to understand that their interests are actually opposite to Apple’s interests, for real. They want short-term, and contrary to what they want the world to believe, they aren’t specialists at anything, not even economy, and the crisis has proven that. They are just people who want to make money at all costs, big deal… Nothing to see here.

    • jrox16 says:

      Yep… The criminals and so called “geniuses” on Wall Street are the ones usually responsible for all the problems in our economy, not companies which continue to grow and make insane profits. Wall Street should clean up their own bullshit so as not to prevent another Great Recession before worrying about what profitable companies do. Banning nonsense financial products like credit default swaps, which create no value and no jobs but which greatly contributed to the last economic collapse, would be a good place to start.

  5. telecastle says:

    The only thing this acquisition will achieve is being able to sell more plastic iPhones 5c to a certain demographic that wears Dr Dre headphones. I’m extremely disappointed in this move. Tesla would have been a much better acquisition even at five times the price.

    • Joe Monaghan says:

      You have NO idea the potential opportunities the Beats acquisition might open for Apple. There is the music streaming side of the business, there are the speakers that are built into all Macs, there are the speakers built into all iPhones, there are the headphones that are included with all iPhones, there are the headphones that Apple sells, there is likely many business relationships that come with those included in the acquisition (Dr. Dre for example), and there are probably other patents that no one knows about. On top of all that, this may make Apple’s streaming services revenue a bit more complete. iTunes Radio = Free while Beats Music = Paid.

      If I can get my next iMac with some awesome sounding speakers I will be happier. If I can get my next iPhone with better sounding speakers I will be thrilled. If the headphones that come with my next iPhone are better I will be happy. You see where this is going?

      • Air Burt says:

        Beats are bass-boosted headphones, nothing more. You can achieve the same sound now by using the system EQ settings. Beats aren’t true to the actual recording/sound like the Sony MDR-V6 or Sennheiser HD280. You’ll never see any speakers in Apple products labeled as Beats because Apple knows better.

    • alvinguzman says:

      Really…people reacting like Apple bought What’s up. This is a great business deal that will be paid off in less than 2 years.

  6. Dean Lubaki says:

    But since Apple has a ton of cash… This is not really the shareholder’s cash…

  7. IMO they bought Beats to secure Iovine to get deals with music/movie companies, the kicker they have Beats brand to sell the cheapest Apple devices ever made

  8. So hang on – the only feedback given are from nobodies who work for financial businesses that are so miniscule and irrelevant in the finance sector one really has to wonder why they were even quoted. Is it because those organisations that are worth a damn tend not to resort to the pathetic and childish analysis? that maybe it is too early to tell what is going to happen? maybe the analysts at the more established firms are waiting for WWDC2014? Btw, from what I understand the reason why they didn’t go for Spotify and Pandora is the fact that their licences are non-transferable and they don’t have the connections in the industry that Apple needs if they’re going to roll it out internationally so that they have a presences in every country.

  9. standardpull says:

    Apple has been smarter than Wall Street over the past 15 years. It will be fun to see if the new Apple leadership also has them beat.

    Regardless it has to be better than HPs purchase of Palm, or GMs purchase of SAAB.

  10. “To see this kind of money spent for a company that gets most of its revenue from hardware business is not what we want to see” — Isn’t that how Apple makes most of its revenue?

  11. Scott Howard says:

    Whatever this particular author thinks, the way Apple has been trading during the last 3 weeks during the time that this deal has been in the works seems to suggest that Wall Street is overjoyed. I cannot imagine he interviewed a large enough sample, or else why would APPLE be up so much?

  12. To the readers… Keep in mind that Wall Street can’t see past their noses. If they see a move that’s not in their ‘book of moves’, then it’s risky and/or suspicious, and most likely will cause them to panic.

  13. Who gives a crap what the criminals on Wall street think.

  14. Gozika Omezi says:

    These Wall Street rogues should try starting and running a business let see If the business will even be worth a dollar. What do they know about a business other buy or sell, considering the amount of time the financial market has crashed. Who in their right mind want to take business tips from them

  15. scumbolt2014 says:

    Screw Wall Street. I’m unimpressed with an industry who’s lifeblood consists of prognosticating what the value of a company is based on their stupid whim while they make nothing of value but money for cheaters and liars.

  16. Jason Piebes says:

    I’ve been noodling this through for some time… and I think I know why Apple picked up Beats. Beats is definitely a ‘brand’. There’s a strong identity there. Their customers like wearing Beats products as much as they like using them. Put another way, they are as fashionable as they are useful.

    Beats will be the brand that delivers Apple’s health/athletic wearables.

  17. Haha, within the Beats article I get a Sennheiser add! That’s ironic. To bad apple didn’t spent their money into something useful. The truth is, some people may consider the beats design as cool and on the edge I don’t agree at all. For me they look cheap what matches pretty much with their sound. Who really likes authentic sound reproduction would never look at beats at all. But hey the same is true for Bose and Apple’s own bad headphones. Wearing beats is like a bold statement “I have no clue about good sound quality”. Great I got that!

  18. drtyrell969 says:

    It’s a headphone company for Christsake. It has NO value in the big picture of things. Apple is dumping its billions into crap investments to kill the company; Tim primary mission after Steve. Eventually Google will buy Apple for 2 cents on the dollar. Bookmark this post!

  19. Not what THEY want to see?! What a bunch of jackasses. Do those so-called investors and analysts actually know anything about running a world-class company? Hell, no. Their heads are so filled with greed they can’t see beyond their green-tinted noses. These so-called investors only like moves they think will turn them instant profits and they care little about companies’ goals or consumers. Besides, Apple has enough money to make this deal and also make other deals. Apple looks like it will be around for a while to make other acquisitions. I think Apple has earned the right to be given free reign to make decisions without constantly being second-guessed or criticized for every move they make. They say Apple isn’t making the right moves, but Apple’s making more profits than practically any other company around and yet that isn’t quite good enough for the greedy buggers.

  20. I’m sure these same people said that the iPod was not something they wanted to see when Steve Jobs announced a thousand songs in your pocket. They asked, “Who needs a thousand songs in one’s pocket?” Apple was a computer maker, not a music device maker. Oh the horrors. What was Steve Jobs thinking. Apple is doomed. These people’s stupidity is rampant and they’ll never figure out why Apple does what it does. One just thinks when a company’s market cap is almost $110 billion more than the next place company that the company must know something about properly running a business.

  21. b9bot says:

    Wall street a bunch of clueless dummies. They don’t understand Apple and its business. Apple beats wall street forecasts all the time and the clueless go on being clueless.

  22. Wall Stree was skeptical about the iphone and ipad too.