Kass: Nuthin' but a P/E Thang

Last week Apple (AAPL) announced that it is in advanced talks to pay $3.2 billion to acquire headphone maker and music-streaming service Beats Electronic (co-founded by hip hop artist Dr. Dre and music executive Jimmy Iovine).

There is a tendency to develop extreme observations and make profound conclusions based on every bit of corporate news (no matter how insignificant), particularly as it relates to some of our larger and higher-profiled publicly held companies.

Some of the hyperbolic responses and explanations for the proposed transaction of Beats by Apple are downright silly. I have heard everything from the acquisition is an attempt to launch Apple into the apparel business to this is a way in which Apple will get Jimmy Iovine involved with the company.

My bottom line is that the $3.2 billion transaction is largely irrelevant due to the scale of Apple's market capitalization ($505 billion); sales ($180 billion); cash ($150 billion); earnings before interest, taxes, depreciation and amortization ($65 billion); total assets (above $200 billion); sustainable yearly gross profits ($65 billion) and earnings power; annual capital spend; and so forth.

In light of the fact that the $3.2 billion Apple will spend on Beats is earning nothing in the bank, the deal is slightly accretive.

Beats quality product image is consistent with the Apple brand.

The deal will not move Apple's needle, though. It is not, as described in this ABC coverage, a mega deal.

Nor is the transaction transformative to Apple.

The Beats acquisition is neither a change in strategy nor a statement of floundering innovation within Apple.

The Beats acquisition is a rounding error for Apple.

I can think of a number of reasons why the proposed transaction is, alternatively, modestly smart and additive, modestly stupid and subtractive or, as Randy Jackson might say "just awright."

The acquisition did, however, take me back to the music of the early 1990s and to thoughts of the recent fall from grace of some of the high P/E multiples stocks ( the beta earthquake).

Beats' cofounder Dr. Dre's first solo album (after leaving N.W.A.), The Chronic, was released in late 1992 by his company, Death Row Records. In doing so, he established his patented G-funk sound.

In collaboration with Snoop Dogg, Dre delivered his greatest hit, "Nuthin' but a 'G' Thang," on this triple-platinum album that is widely regarded as one of the most important and influential hip hop albums of all time.

This morning, I ("Dougie Fresh") updated the verses in an attempt to make them relevant to today's stock market (and to the extreme levels of speculation). So, let's start the day with a sing-a-long that pays homage to Dr. Dre and Snoop Dogg's great hip hop hit "Nuthin' but a 'G' Thang" and features, in 2014, Tesla's ( TSLA) Elon Musk and Netflix's ( NFLX) Reed Hastings.

"Nuthin' but a P/E Thang"
(featuring Elon Musk and Reed Hastings)

Elon Musk
One, two, three and to the four
Elon Musk and Reed Hastings are at the door
Ready to make an entrance in order to get our stock prices up
(Cause you know we 'bout to rip the shorts up)
Gimme the microphone first, so my stock won't bust like a bubble
Tesla and Netflix together, now you know you in trouble
Ain't nuthin' but a P/E thang, baby!
Two loc'ed out G's so we're crazy!
Rising valuations is the ticket that paaaaays me!
Unfadable, so please don't try to short this
(Hell yeah)
But, uh, back to the lecture at hand
Perfection is perfected, so I'm 'a let 'em understand
From a young G's perspective
And before me dig out a secondary I have ta' become inventive
You never know when she could be investin' with her man,
And tradin' with her man, and at the same time earnin' with her man
Now you know I ain't wit' that, Lieutenant
Ain't no P/E high enough to get burnt while I'm up in it
(Yeah)
Now that's realer than real-deal Holyfield
And now all you tradas and investas know how I feel
Well if it's good enough to get broke off a proper chunk
I'll take a small piece of some of that funky stuff

Elon Musk and Reed Hastings
It's like this and like that and like this and uh
It's like that and like this and like that and uh
It's like this and like that and like this and uh
Reed, creep to the mic like a phantom

Reed Hastings
Well I'm freakin', and I'm creepin', and I'm streamin'
But I damn near got caught, but my subscriber base keeps increasin'
Now it's time for me to make my impression felt
So sit back, relax, and strap on your seatbelt
You never been on an on-demand ride like this befo'
With a producer who can program original stuff and control the maestro
At the same time with the dope rhyme that I kick
You know, and I know, I flow some ol' funky shtick
"House of Cards" adds to my collection, the selection
Symbolizes that "Orange is the New Black,"
If ya' do, ya' have no clue
O' what me and my homey Elon Musk came to do

Elon Musk and Reed Hastings
It's like this and like that and like this and uh
It's like that and like this and like that and uh
It's like this, and we ain't got no love for those
So jus' chill, 'til the next episode

Elon Musk
Fallin' back on my Tesla with a hellified gangsta' lean
Gettin' funky with a gigafactory like a' old batch o' collard greens
It's the capital E, oh yes, the fresh L-O-N
M-U-S-K, E-L-O-N ya' see
Showin' alota charge when it's time to wreck a mic
Pimpin' tradas and clockin' a grip like my name was Dolomite
Yeah, and it don't quit
I think they in a mood for some "S" series kit
So Reed.
(What up Dog?)
We gotta give 'em what dey want
(What's that, "S" series?)
We gotta break 'em off somethin'
(Hell yeah)
And it's gotta be bumpin' (the road to Wall Street!)

Reed Hastings
It's where it takes place so I'm a ask your attention
Streamin' like a boss but I ain't lynchin'
Droppin' the funky sub numbers that's makin' the tradas mumble
When I'm on the mic, it's like the competition, they all crumble
Try to get close, and you'll get smacked
My billionaire homey Elon Musk has my back
Never let me slip, 'cause if I slip, then I'm slippin'
But if I got "Arrested Development," then you know I'm straight trippin'
And I'm a continue to put the DVD delivery down, put the mack down
And if those short-sellers talk smack, I have ta' put the smack down
Yeah, and ya' don't stop
I told you I'm just like a clock when I tick and I tock
But I'm never off, always on, 'til the break dawn
N-E-T-F-L-I-X, and the road they call Wall Street
Puttin' the programming together
Like my investa Icahn, no one can do it better

Elon Musk and Reed Hastings
Like this, that and this and uh
It's like that and like this and like that and uh
It's like this, and we ain't got no love for those
So jus' chill, 'til the next episode


This column originally appeared on Real Money Pro at 7:48 a.m. EDT on May 12.

At the time of publication, Kass and/or his funds were short TSLA, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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