Apple's Didi investment is surprising but good use of massive $233B cash hoard, analyst says

Posted:
in General Discussion edited May 2016
Investment firm Piper Jaffray views Apple's Didi funding as a new direction for the company, providing long-term strategic positioning benefits in China's expanding automotive industry.




Apple traditionally has not made venture-style investments, so its new $1 billion investment in Didi Chuxing, China's largest ride-sharing company with some 90 percent of the potential ride-share market, initially came as a surprise.?But analyst Gene Munster in a note to investors on Friday pointed out that the Didi investment makes sense given Apple's interest in China. Apple's $1 billion investment is its second largest cash outlay after Beats, acquired for $3 billion in 2014.

While $1 billion is a large sum for many countries, let alone private corporations, it's a drop in the bucket for Apple -- a company that in its most recent earnings report claimed a $232.9 billion cash pile. Apple has ignited controversy by holding as much as 90 percent, or $208.9 billion, of those assets outside the U.S. in a bid to avoid repatriation taxes.?

Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation.

Didi provides Apple with an easy and profitable way to use its overseas cash by investing in the future, helping investors make a return while protecting the money from heavy taxation. The move represents a step in a new direction to address these concerns, while at the same time helping investors make a return.

In 2014, activist investor Carl Icahn voiced his belief that Apple's shares were dramatically undervalued and should be trading at $203 per share, a price target he later bumped to $216 a share and, at its highest, $240 per share. Although Icahn recently dumped his position in Apple amid on Chinese market concerns, he has long pushed for the company to put its reserves toward aggressive stock buybacks.

Icahn is not alone in his concern about this apparent "excess" in liquidity, as other Apple investors want to reap benefits from Apple's cash pile. To address this need, Apple has accelerated its stock repurchase program and a quarterly dividend as part of plans to dish out $250 billion to shareholders by March 2018.

Like others, Piper Jaffray also believes the Didi investment could assist Apple in directing its "Project Titan" car effort. Munster sees the potential of on-demand taxi services such as Didi's, noting such software platforms might be more profitable than traditional car sales in an autonomous vehicle future. If and when the auto industry shifts to self-driving products, brand value -- normally an advantage for Apple -- will likely diminish, Munster said.

In China, Didi faces stiff competition from international ride-sharing giant Uber China, which last year raised $1.2 billion in funding to put toward Chinese operations. Taking part in that funding round was local search engine giant Baidu. Like its U.S. counterpart Google, Baidu is investing heavily in autonomous vehicle technology, and company CEO Robin Li said working models should be available by 2018, followed by production at scale by 2020.

While Apple's endgame remains unclear, Munster believes the Didi investment might represent the company's first steps in disrupting yet another industry. If Apple can successfully integrate an autonomous taxi service software platform with a well-designed, user-friendly hardware system built for consumer cars, for example, it might have a repeat of iPhone on its hands, the analyst said.
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Comments

  • Reply 1 of 26
    staticx57staticx57 Posts: 398member
    Damn analysts know nothing. What Apple will do will be a complete surprise. Don't listen to analysts.
    caliirelandbadmonk
  • Reply 2 of 26
    radster360radster360 Posts: 540member
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
  • Reply 3 of 26
    calicali Posts: 3,495member
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.

    Streaming is a whole market that has potential just as great.

    Beats hardware could potentially generate 6 billion a year under Apple's umbrella. Before being acquired they were generating 3 billion a year with little to no advertising.

    Bluetooth is the future and Beats is the Titanic audio brand, I wouldn't be surprised if Tim Cook announces a new Bluetooth product category soon. Headphones, Bluetooth stereos, streaming.... Don't be surprised if the 3 Billion dollar Beats deal generates 12 Billion a year in a decade.

    The Didi deal is also great. Very interesting and mysterious. I hope they use the service for transportation research and mapping China.
    edited May 2016 Soliirelanddelreyjonesrepressthisjakebargonaut
  • Reply 4 of 26
    radster360radster360 Posts: 540member
    cali said:
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.

    Streaming is a whole market that has potential just as great.

    Beats hardware could potentially generate 6 billion a year under Apple's umbrella. Before being acquired they were generating 3 billion a year with little to no advertising.

    Bluetooth is the future and Beats is the Titanic audio brand, I wouldn't be surprised if Tim Cook announces a new Bluetooth product category soon. Headphones, Bluetooth stereos, streaming.... Don't be surprised if the 3 Billion dollar Beats deal generates 12 Billion a year in a decade.

    The Didi deal is also great. Very interesting and mysterious. I hope they use the service for transportation research and mapping China.
    Wow! All I said that it would have larger ROI than Beats - There was no complain about Beats acquisition. Now that since you took the conversation somewhere else - If Beats was already generation $3B/year than I guess Apple got a real deal at $3.2B for Beats. Maybe the numbers you providing doesn't seem right. You mention "potentially" generating $6B - That means you are not sure because I think Beats goes under "Other" column for Apple. Yes, Beats headsets had enjoyed it success for a while - I don't think Millennials are buying them anymore. 
    rogifan_new
  • Reply 5 of 26
    Apple is hiding in plain sight. The iPhone 4 was leaked when it was found in a bar encased in a 3GS shell. I think it's a little odd that the Apple Maps van was indentified shorty after rumors of project Titan started to surface.
  • Reply 6 of 26
    latifbplatifbp Posts: 544member
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    edited May 2016 robertwaltercalidelreyjonesargonaut
  • Reply 7 of 26
    KBuffettKBuffett Posts: 6member
    What value have shareholders had from the billions of shareholder cash wasted on shareholder buybacks?

  • Reply 8 of 26
    calicali Posts: 3,495member
    cali said:
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.

    Streaming is a whole market that has potential just as great.

    Beats hardware could potentially generate 6 billion a year under Apple's umbrella. Before being acquired they were generating 3 billion a year with little to no advertising.

    Bluetooth is the future and Beats is the Titanic audio brand, I wouldn't be surprised if Tim Cook announces a new Bluetooth product category soon. Headphones, Bluetooth stereos, streaming.... Don't be surprised if the 3 Billion dollar Beats deal generates 12 Billion a year in a decade.

    The Didi deal is also great. Very interesting and mysterious. I hope they use the service for transportation research and mapping China.
    Wow! All I said that it would have larger ROI than Beats - There was no complain about Beats acquisition. Now that since you took the conversation somewhere else - If Beats was already generation $3B/year than I guess Apple got a real deal at $3.2B for Beats. Maybe the numbers you providing doesn't seem right. You mention "potentially" generating $6B - That means you are not sure because I think Beats goes under "Other" column for Apple. Yes, Beats headsets had enjoyed it success for a while - I don't think Millennials are buying them anymore. 
    There's lots of Beats bashing that just won't die and the fact you randomly mentioned it made me believe you were of that crowd, this is something they do, find ways to bash Beats in irrelevant articles.

    Before Apple acquired them they would share numbers. 3 billion was the last one I remember.

    By your same logic I can say the Didi deal WON'T have larger ROI. Apple just invested so there's no way of telling.
    Not saying it won't, but you definitely can't put down the Beats deal when it's already proven valuable in hardware, streaming and influence/"coolness".
    Watching android users jamming out in Beats headphones reminds me how genius the acquisition was. You can bet Apple made more profit on those headphones than the android manufacturer made on the phone.

    I use the word "potentially" for two reasons:

    1. I believe Apple is a huge company with enough talent/money/influence to at least double Beats revenue in the future.

    2. Like you mentioned, it's under the "others" category so we will never actually know if/when it's generating 6 billion unless Cook tells us.

    So the word "potentially" fits but I'm confident the brand will expand under Apple.

    Beats has proven themselves to be more than a fad, they still sell like crazy and have their own dedicated section in most electronics stores. They're not a Walkman and have been around for a long time already and haven't slowed down from what we see.
    irelandrepressthisargonaut
  • Reply 9 of 26
    calicali Posts: 3,495member
    latifbp said:
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    And that's only one of the many benefits the deal brought.

    Influencing new customers, streaming, patents, Iovine/Dre, and the hardware is basically free money.
    latifbpbaconstang
  • Reply 10 of 26
    irelandireland Posts: 17,549member
    It's not clear the investment is related to autonomous vehicles.
    delreyjonesbaconstang
  • Reply 11 of 26
    latifbplatifbp Posts: 544member
    cali said:
    latifbp said:
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    And that's only one of the many benefits the deal brought.

    Influencing new customers, streaming, patents, Iovine/Dre, and the hardware is basically free money.
    Totally agree! I was just driving home the point that even if that was the only reason it would have been worth it. But as you aptly pointed out this was a well thought out, strategic acquisition that had multiple dimensions through which Apple could profit. In addition I used to own a pair of a Beats Pro headphones and I loved them! I only sold them to get max value now in case Apple really did read d of the headphone jack. 
    edited May 2016
  • Reply 12 of 26
    tzterritzterri Posts: 97member
    Let's welcome in the new Chinese autonomous vehicle overlords.
  • Reply 13 of 26
    rogifan_newrogifan_new Posts: 3,833member
    cali said:
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.

    Streaming is a whole market that has potential just as great.

    Beats hardware could potentially generate 6 billion a year under Apple's umbrella. Before being acquired they were generating 3 billion a year with little to no advertising.

    Bluetooth is the future and Beats is the Titanic audio brand, I wouldn't be surprised if Tim Cook announces a new Bluetooth product category soon. Headphones, Bluetooth stereos, streaming.... Don't be surprised if the 3 Billion dollar Beats deal generates 12 Billion a year in a decade.

    The Didi deal is also great. Very interesting and mysterious. I hope they use the service for transportation research and mapping China.
    Wow! All I said that it would have larger ROI than Beats - There was no complain about Beats acquisition. Now that since you took the conversation somewhere else - If Beats was already generation $3B/year than I guess Apple got a real deal at $3.2B for Beats. Maybe the numbers you providing doesn't seem right. You mention "potentially" generating $6B - That means you are not sure because I think Beats goes under "Other" column for Apple. Yes, Beats headsets had enjoyed it success for a while - I don't think Millennials are buying them anymore. 
    Beats headphones are part of the "other" category within the financials. According to Tim and Luca any YOY growth in the other category is/was due to Watch. Apple bought Beats when the headphones were at their peak of popularity. I used to go into Best Buy and all you would see were Beats. Now I see Beats amongst many other brands. Beats may have improved in terms of quality but I think they still have the stigma of being overpriced crap.
  • Reply 14 of 26
    rogifan_newrogifan_new Posts: 3,833member
    latifbp said:
    "...In China, Didi faces stiff competition from international ride-sharing giant Uber China,..." This statement is not accurate. What I understand that it is other way around. Didi is available in 400+ cities in China, while Uber is only in 45 or so Chinese cities.

    Also, I think this was a wise investment. It will have much larger ROI than Apple $3B investment in Beats. This investment will certainly help pushing Apple Pay and other Apple eco-system plays.
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    So basically Apple spent $3B to try and look cool to black people?
    rcfarevenant
  • Reply 15 of 26
    rcfarcfa Posts: 757member
    cali said:
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.
    Beats may be profitable, but Beats is a ghetto brand. Nobody with even half a clue about headphones is buying either Bose or Beats where audio quality matters. Bose has a market with active noise cancelling headphones (but other brands have just as good products), beats had a hip design (which is starting to get old), and that's about it.
    If Apple had wanted to buy a headphones company, they'd have bought Sennheiser, AKG, or AudioTechnica.
    Apple bought Beats to get connections to the Music industry to help negotiate for their streaming service, while picking up a bit of know-how from beats' streaming service and some sub-par headphones along the way.
    If they couldn't have done more with less is idle speculation in absence of a parallel universe to compare to but not easily dismissed, because there are plenty of good arguments as to why they overpaid (but the valuations of acquisitions in the internet age defy common sense and ROI calculations anyway, they are more shock and awe money burning flash grenades...)
    baconstang
  • Reply 16 of 26
    delreyjonesdelreyjones Posts: 322member
    staticx57 said:
    Damn analysts know nothing. What Apple will do will be a complete surprise. Don't listen to analysts.
    Yeah?  Has anyone measured their accuracy compared to the average comment-writer on AppleInsider?  
  • Reply 17 of 26
    delreyjonesdelreyjones Posts: 322member
    cali said:

    There's lots of Beats bashing that just won't die and the fact you randomly mentioned it made me believe you were of that crowd, this is something they do, find ways to bash Beats in irrelevant articles...


    I appreciate your comments on Beats.  One thing I've know for sure is that I'm pretty ignorant about how wise or unwise, in hindsight, the acquisition was.  What you say sounds logical and I hope it's true!
  • Reply 18 of 26
    foggyhillfoggyhill Posts: 4,767member
    latifbp said:
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    So basically Apple spent $3B to try and look cool to black people?
    Brands have a value, even a very high value. Beats brand when coupled with Apple's distribution and own brand cachet is worth even more.

    If you think Hiphop is only the purview of "blacks", you haven't seen the US Hot 100 charts lately or looked at what kids have on their heads or listen to.

    Blacks have had a massive effect on US culture post 1918.
    HipHop, RnB, Jazz, Rock & Roll and roots music and general popular culture have all been marked by this influence.
    This influence has always come through youth culture first to them filter into the rest of society.

    Since blacks were seen as "not mattering" and being free from the constraint of "normal society) (this comes in part from stereotypes),
    anything new could simmer there and those seeking it out could leave their safe haven to seek that excitement.
    The next big thing doesn't develop in "normal" society  but on the fringes.

    Apple and jobs once saw themselves as a rebels, so I find this kind of country club attitudes of current Apple buyers kind of funny.

    That's the ironic thing that blacks have had so much impact and there are still realy weird comments like yours that seem to be stuck in the segregation era.

    edited May 2016 baconstanglatifbp
  • Reply 19 of 26
    foggyhillfoggyhill Posts: 4,767member
    rcfa said:
    cali said:
    The Beats deal was great and they've already made their money back. Why are people still crying about it? Beats headphones rule the market and every iPhone/iPhoney user is a potential customer.
    Beats may be profitable, but Beats is a ghetto brand. Nobody with even half a clue about headphones is buying either Bose or Beats where audio quality matters. Bose has a market with active noise cancelling headphones (but other brands have just as good products), beats had a hip design (which is starting to get old), and that's about it.
    If Apple had wanted to buy a headphones company, they'd have bought Sennheiser, AKG, or AudioTechnica.
    Apple bought Beats to get connections to the Music industry to help negotiate for their streaming service, while picking up a bit of know-how from beats' streaming service and some sub-par headphones along the way.
    If they couldn't have done more with less is idle speculation in absence of a parallel universe to compare to but not easily dismissed, because there are plenty of good arguments as to why they overpaid (but the valuations of acquisitions in the internet age defy common sense and ROI calculations anyway, they are more shock and awe money burning flash grenades...)
    All I hear is after "ghetto" is, blah blah blah I don''t know what the fuck I'm talking about. Get a clue or get out.

    tmaypatchythepiratelatifbp
  • Reply 20 of 26
    jakebjakeb Posts: 557member
    latifbp said:
    The Beats brand is about extending customer base into the whole culture of Hip Hop and R&B. That is far more valuable to Apple than headphone sales.
    So basically Apple spent $3B to try and look cool to black people?
    Sure, but not just. Beats is *the* headphone brand among non audiophile nerds (which is such a small market, it's silly). In the NYC subways, 2 out of 3 headphones are Beats. 

    The Apple brand of cool is firmly rooted in the aesthetic of the mid-2000s and needs to find ways to evolve or risk being a "dad phone". Beats is part of that. 
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