Does Apple (AAPL) Get The Beat?

| May 16, 2014 | 0 Comments

For some time, investors and analysts have been speculating on what Apple (AAPL) is going to do with its over $150 billion in cash.  Make no mistake, that’s as massive a cash hoard as you’ll ever see for a private company. 

In fact, Apple’s cash holdings alone would make it the 33rd largest public company in the US.  (That’s bigger than Facebook (FB), for comparison.)

So what does a company do with all that cash?

Just recently Apple upped its dividend and increased its share buyback.  Certainly, those are investor friendly moves.  But, the moves are hardly game changers.  As well as Apple has done, investors are still hoping for the next big thing.

That’s why the company’s interest in Beats Electronics could be big news.

Yes, we’re only talking about an alleged $3.2 billion transaction.  Nevertheless, it’s what the acquisition represents which is big news for investors.

First off, Beats Electronics makes headphones and provides a music-streaming service.  The music service functions like rival Spotify.  That is, for $10 per month, the subscriber gets unlimited access to all the songs in the service’s catalog, which can be accessed though smartphone, tablet, or the Web.

Apple’s potential purchase of Beats is most likely about the music-streaming service rather than the headphones.  However, Apple does have plenty of experience dealing in hardware.

Still, music has been one of the staples for Apple over the years.  The company put itself back on the map with the iPod, and continues to be the biggest digital music dealer in the US through iTunes.

However, digital music sales declined last year for the first time ever.  Apple has to be concerned about the future of music distribution given how important it’s been to the company.  

With Beats, the company now has a streaming service to compete with Spotify and others.  And, the recently launched iTunes Radio competes directly with Pandora (P) (music streaming for free, but with ads).

In other words, Apple management is aggressively pursuing market share in the music distribution space.  They aren’t going to sit back and let the market dictate the company’s role in the future of music.  For investors, that’s certainly a good sign.

It seems clear that Apple isn’t going to rest on its laurels.  The company’s going to continue to be competitive in all its core areas – as well as expand into new ones over time.

As such, I recommend moderately bullish options positions in Apple for the medium to long-term (short puts, long call verticals, etc.). 

Yours in Profit,

Gordon Lewis

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Category: Options Trading

About the Author ()

Gordon Lewis is the Chief Investment Strategist and editor for the popular daily newsletter – Options Trading Research. He’s also one of the key analysts behind the highly successful Options Trading Wire and Advanced Options Adviser. As a market maker on the floor of the CBOE, Gordon analyzed and traded stocks and options across a broad range of market caps and industries including retail, internet, oil, insurance, and telecom. He often traded thousands of options contracts per month… and it’s fair to say, Gordon’s analyzed and invested in some of the most complex and successful options strategies in the world.

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