Even though Cook said it's not about building it, "it's the people. It's the service", is $3 billion worth what is essentially an acquihire?
EDIT: Right, it's still a profitable business regardless and I should have touched on that. But I don't want to see big tech companies acquire just for profit. They become behemoths that die slow deaths. I want to see Apple continue to reinvent based on their vision. I don't want them buying safe businesses. It's the reality of the world, I guess. I just firmly believe that Apple could have created their own spin on this market for less than $3 billion and beat out Beats.
The reason for the purchase might be the people, but it doesn't mean the people are the only thing determining its value. They had > $1b in revenue last year, and that can't just be ignored when determining a fair value for the company.
I don’t think anyone is arguing Apple bought them for the revenue. Apple is making enough money, they really don’t need this tiny revenue stream.
However, if they really only want part of Beats, they still have to buy the whole company, revenue and all. They have to pay for it.
This is less of a problem than it seems, though. One plausible scenario is that Apple just keeps the hardware part of Beats separate and making money, while getting all the rest of the people working for Beats on board.
This is a large acquisition, but it’s not super huge and mostly so big because Beats successfully makes and sells hardware. If they keep that part separate and independent of Apple in the future this might actually turn out to be a tiny acquisition, more in line with Apple’s past music acquisitions. Think Lala: http://en.wikipedia.org/wiki/Lala_(website)
Beats has a well known brand, and their headphones business is doing pretty well for itself. It's in a whole different league from the usual "buy a startup with a tiny market share and shut down their operations to repurpose the engineers six months later" acquihire.
True but if they're the best people that might be the only way to get them. The company makes a lot of money so you have to take that into account - it's going to continue make a lot of money under Apple. I think enough that they could make that $3bn back in 5 years on headphone sales alone even if the streaming service didn't work out.
Edit:
>> "Right, it's still a profitable business regardless and I should have touched on that. But I don't want to see big tech companies acquire just for profit."
I agree. I don't think Apple was buying for profit. But when you're valuing a company the fact they are really profitable has to factor into the price. I read they made almost $1bn last year selling headphones so $3bn isn't a crazy valuation.
Yes because it's a profitable business and will be accretive right away. The financials provide a baseline for why this deal is good, Iovine/Dre and Beats Music is just a free call option.
setting aside the streaming service and the profitable hardware, bear in mind the context if you evaluate the deal purely as a acquihire. apple has about $160B in cash [1]. $3B for an acquihire is comparable to zynga in 2013 [2] purchasing some startup for $30M.
Acquihires are by definition evaluated on the perceived market value of the team, which is very rarely proportional to the cash reserves of the buyer. The existence of wealthy suitors like AAPL might shift market values (for any prospective buyer) for tech talent upwards, but no matter how much cash they have in the bank, AAPL can certainly acquihire top talent in the $30m range if that talent is showcasing their skills at unprofitable startups rather than highly profitable brands, in much the same way as they have no need to offer employees salaries' two orders of magnitude more than comparable level employees at companies with a mere $1.6M in the bank.
It would have to be seriously impressive talent to be worth $1.6Bn when you compare it with what Apple paid for NeXT...
EDIT: Right, it's still a profitable business regardless and I should have touched on that. But I don't want to see big tech companies acquire just for profit. They become behemoths that die slow deaths. I want to see Apple continue to reinvent based on their vision. I don't want them buying safe businesses. It's the reality of the world, I guess. I just firmly believe that Apple could have created their own spin on this market for less than $3 billion and beat out Beats.