UBS analyst Steve Milunovich (Buy, $700 PT)
"Apple finally announced the acquisition of Beats Music and Electronics for $3bn, including $2.6bn of mostly cash and $400mn vesting over time. We are moderately positive on the deal as there is product and cultural compatibility. Beats had $1.1bn of revenue in 2013 and we estimate close to $1.5bn this year. A price of 2x sales seems reasonable to us given apparently high margins. Apple acquired two US LLCs, so it probably used US cash. The deal will close in F4Q and be "fully accretive" in F15, meaning including amortization included in reported EPS."
Credit Suisse analyst Kulbinder Garcha (Neutral, $560 PT)
"The deal shows Apple's own foray into iTunes Radio may not be yielding the right results and shows pragmatism on the part of the company. Second, Apple's brand and distribution should accelerate Beats growth. Third, it shows Apple is taking an open attitude to external talent, which may be a key to stimulating innovation."
"We believe the main reason Apple has done this is in order to get Dr. Dre and Jimmy Iovine -- two very talented people in the music industry -- and also for Beats' subscription music-streaming business, for which it charges $10 a month per subscription. Apple's iTunes Radio division has plateaued in recent quarters, so the deal could potentially reignite that segment. That said, Beats streaming is fairly new and has just 250,000 subscribers. That compares with Pandora, which has been around since 2005 and has 76 million members, and Spotify, which has 24 million subscribers and was launched in 2008."
Oppenheimer analyst Ittai Kidron (Perform, No PT)
"The keys to the deal are likely the creative leadership Apple is adding with Jimmy Iovine, brand-equity, and the streaming music service. Mr. Iovine's industry credibility and connections could be an asset as Apple works on content deals going forward and as it potentially enters new market segments. Beats Music is still emerging (small subs-base (<1M)/unproven monetization potential), but the technology/content could enhance Apple's own iTunes Radio platform. Apple has quickly ramped the number of iTunes Radio users, but it is yet to take much mind-share from competitors such as Spofity (~10M paying subs) and Pandora (~70M active users).
Beats products have long been available as accessories at Apple stores and its premium brand name (which Apple will continue to support) is well aligned with Apple's own premium branding approach. That said, Apple has historically shied away from diluting its own brand so the success/support of the Beats brand (and the younger demographic it serves) is an area to watch."
Pacific Crest Securities analyst Andy Hargreaves (Outperform, $650 PT)
"As expected, Jimmy Iovine and Dr. Dre will join Apple, although their roles are unclear. Both are proven music executives/producers with talent and relationships that may help Apple expand vertically in the music business, which could provide revenue and cost synergies to the company. We do not view this opportunity as large on Apple's scale, but the cultural importance of music could provide a positive infusion to Apple's brand."
--Written by Chris Ciaccia in New York
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