Originally Posted by RadarTheKat
Seems a lot of folks out in the market miss the point that a small company, on its own worth X, in the hands of a huge company, can be worth 10X or more. Apple will multiply the value of Beats Electronics by simply amping up the marketing of those premium-price Beats headphones globally to Apple's enormous installed base of iPhone and iPod owners. Beats, on its own, doesn't have direct access to those folks and Apple would not likely give access to one external peripherals vendor over another. But as an Apple-owned brand, Beats will get top billing among Apple's marketing space. Ka-Ching! Suddenly, Beats is selling $2 billion, then 3, then 4 billion of headphones, portable speakers and in-car audio solutions. Could this be what Tim Cook has in mind when he said the Beats acquisition will be accretive in 2015? Heck, that's pretty soon given that the deal won't close until the end of 2014. I'm inclined to believe Cook when he says the deal will be accretive over someone who is clearly having a knee-jerk reaction based upon a valid, but inconsequential assessment of the headphone acoustic quality.
Well, here's my take.
1. I don't know how much Beats has in terms of CASH.
2. I don't know how much Beats has in terms of Net Profits from the combined efforts.
3. I do know that MOST companies that make a product like Beats headphones are probably running between 10 and 20% Net Profit to Gross Sales is a pretty close spread. Obviously, the margins increase if Apple owns Beats since they sell the products in their own stores because they instantly make more money.
4. I do know that Beats Music was losing money due to lack of paid subscribers. How much they were losing I don't know, but they just dropped the price of the paid service, so they will need to get that much more paid subscribers to break even, at what point they will break even, I do not know and I also don't know if they have factored in this recent price drop or not.
5. Can Beats continue at the growth rate they are at and for how long? I don't know.
6. What the company is worth is only as much as someone is going to pay.
What Tim Cook says and what is reality is anyone's guess because unless Tim Cook is releasing the numbers to run our own what if's, I have a gut feeling he's not telling us everything. If he was honest enough to disclose the facts about Beats, then we could validate, and I can't stand it when they don't disclose everything when there is a large acquisition like this when Beats isn't a publicly traded company. Between Cook and Cue, they seem to be doing a lot of damage control and don't you think it was odd that no one has been confronting them with the burning question of what Apple thought of the video that was posted by Dr. Dre's idiot friend? Dr. Dre has been pretty quiet. Are they going to hide him from being interviewed by the media on this? When people escape the media, it's obvious they are hiding something especially when what they are hiding from is already public. It's just suspicious to me. My trust in Cook is not at an all time high right now for various reasons, so I'm just being skeptical until PROVEN otherwise.
Beats hasn't been in business all that long and I quite honestly don't know how much cash they had, but i don't think they were rolling in it.
If Beats Electronics did $1.4 last year in gross sales, that means they might have made in Net Profits around $140 to $280 Million at most. I highly doubt they made any more than that. Apple, as well run as they are, made about 20% Net Profits, but something tells me Beats isn't as well run as Apple. Now, how much money is Apple going to have to dump into Beats Music to get their s/w redesigned, because just because Apple bought them doesn't mean that I will automatically use it. I do have an iTunes account and I have in the past bought songs from iTunes and I have iTunes Match, but from trying Beats Music, it's an awful app. It looks like Google and Microsoft join forces to hack out a subscription app and this is what happened when they got together with their reject UI designers.. To me, it's that bad. You may think otherwise, but I wouldn't use it. But I can understand why Beats had a problem getting paid subscribers and why Apple dropped the yearly subscription rate.
Either way, most companies get bought at a fairly large multiple of around 10X or more of their earnings. That's typical, unless someone's stupid. HP bought Autonomy and paid considerably more than 10x their earnings and they later found out there was a huge possibility of strange accounting, which I could believe.. So, if it's not a publicly traded company 10x or more is typical. That means, if the company continues at the same Net Profit, it can take 10 years to recoup. I am a little suspicious that they can recoup their money in 1 year. I just highly doubt that unless Apples' factoring in a HUGE increase in Beats Music users or something they aren't telling us.
I like full disclosure on things like this, without, it sounds fishy, that's all.