Apple Inc. (AAPL) Buying Beats is All About Option Value Says Toni Sacconaghi


Sanford C. Bernstein senior research analyst Toni Sacconaghi told CNBC that the Apple Inc. (NASDAQ:APPL) and Beats Electronics deal is easy to justify but thinks the iPhone-maker could have done better.

Sacconaghi agreed that there is a price to be paid to acquire talent and that there is talent acquired with the Beats Electronics deal. He also agreed that the price paid for the deal is fair noting that the electronics business can be a very profitable business. However, he stressed that he would rather have had Apple Inc. (NASDAQ:APPL) “deploying this capital into something where there’s more growth potential for the company going forward than music.”

Apple, Toni Sacconaghi, Is Apple A Good Stock To Buy, Sanford C. Bernstein,

The CNBC team then asked the senior research analyst whether this is a case where investors ignore the analyst community because analysts have to have figures to work with when this Apple Inc. (NASDAQ:APPL) deal is about the intangible quality of what the two companies can do together moving forward. CNBC cited what SVP Eddy Cue said that this deal is not about what the two companies are doing today and what CEO Tim Cook said that there exists a sort of “Berlin Wall” dividing Silicon Valley and LA and that Jimmy Iovine, Beats Electronics cofounder and CEO, can help break this down.

Sacconaghi reacted by saying that this is possible. However, he continued:

“I think apple is about option value and they’re an incredibly creative company and they’ve added additional creative people. One can never put a price on option value. [But] again, my contention or issue with the deal is not about how it works financially because I actually can make the numbers work based on Beats Electronics. That’s a high margin business, so it’s not that. Would we rather have seen something that feels more forward-looking rather than reactive? Because Apple has a $6.5 billion music business today in iTunes and could Apple have gone out and hired extremely talented people? Perhaps not Jimmy Iovine but other extremely talented people, at a lower price, and directed this capital somewhere else.”

Watch the full video below where Sacconaghi also discussed his firm’s short-term price target for Apple Inc. (NASDAQ:APPL):

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