Dreaming of Streaming

Said Timmy to Jimmy & Dre:
"Whether Apples keep Dr.s away,
It sweetens the tones
On iPods & -Phones
If revenue streams when they play."

Said the Dr. & Jimmy to Tim,
On the music they're making with him:
"Without some new Beats,
One's coolness depletes
And the revenue outlook is dim."

Said Timmy: "A streaming solution
May not be the next evolution,
But it's better I blew
3 billion on you
Than a shareholder cash distribution."

In a move that was so long anticipated, many investors forgot about Dre, Apple yesterday confirmed its intention to buy Beats Electronics LLC.  The $3 billion acquisition brings with it Beats co-founders Dr. Dre and Jimmy Iovine.  Though best known for its high-end, sexy headphones, Beats is thought to be more valuable to the provider of iTunes, the leading online music store, for its nascent music streaming service.  As Heidi Moore reports in the Guardian, music downloads have peaked, and actually declined 2% to $3.9 billion last year, while subscription-based revenues rocketed up by 50% to $1.1 billion.

Mr. Iovine, a long-time record industry leader, "was one of the first industry executives to anticipate the download business's decline and advocate for subscription and streaming services as music's future," according to one analyst.  Mr. Iovine has also maintained a long and friendly relationship with Apple and iTunes, going back to the origins of online music sales under Steve Jobs.

Apple CEO Tim Cook must certainly hope that the combination with Beats will once again put the company in the position of knowing what the consumer wants before the consumers themselves do. 

Tax iVoidance

Said Cook, to the Senate's seniority:

"Though gadgets remain our priority,

While profiting scads

From iPhones and -Pads,  

We skirt every taxing authority."

High? What High?

Said a really curmudgeonly guy
On the Dow Jones Industrial high:
"It's still quite a ways
From the Internet craze,
When adjusted for core CPI."

The $137 Billion Question

There's a question for Cook and his board
Arising from Apple's cash horde:
At exactly what height
Of liquidity might
Alternatives best be explored?

Said Einhorn: "I'm finding absurd
All the dividend plans that I've heard.
If shareholder value
Is your rationale, you'll
Agree that my way is preferred."

Core Cash Flow Multiple

Said a notable stock-pickin' man:
"Of $AAPL I'm not such a fan,
But the price is so low
Compared to cash flow,
I'm buying as much as I can."

Hedge fund manager and blogger James Altucher posted an amusing take-down of the bearish Apple sentiment in Seeking Alpha yesterday. The gist of it is that six times cash flow is too little to pay for the shares of a company whose revenue is still growing at 20%, so the recent fall to $440 from $600 a share is just noise.

Says Altucher: "I own Apple since my initial $1000 call and anyone who did is well in the money. Meanwhile, I also own Google and Amazon. These companies are going to keep innovating past each other and by the time they are through one of them is going to make a time machine, the other is going to put a phone into our neurons, and the third is going to let us spend the rest of our lives in drugged out virtual realities while we fly around in pilotless spaceships. So I'm staying long."

N.B. Altucher's investment horizon is five years, so this is not exactly a day-trading recommendation.

Apple Share Price Analysis

A thousand per share may have sounded
Pretty wild, but it's rather well-grounded
In intense devotees
And a billion Chinese,
Whose potential to buy is unbounded.

Stock analysts at two different firms have recently published $1,000 per share valuations for $AAPL, estimating the company's market cap at $1 trillion. Is this just a stunt, or is it supported by solid analysis? Marketplace's Heidi Moore spoke to both analysts, who actually sounded like reasonable people. Brian White of Topeka Capital Markets explained it this way: "They’re creating a digital grid: The Apple digital grid. Do you want to be on Apple’s digital grid that’s a Ferrari, or someone else’s digital grid that’s a scooter?" Shareholder Oliver Pursche agrees with the notion that Apple has given birth to an entire ecosystem, and adds: "They sold more iPads in 2011 than babies were born in the United States." Both men take note of the company's potential for explosive growth in China, where the gains from expanding consumption may soon outweigh those of efficient production.

iCash

"In business," said someone who knows of it,
"When a mound of liquidity grows of it,
A sizable herd
Will hang on your word
Of how you intend to dispose of it."

Apple enthralled the worlds of investment and technology on Sunday with their announcement of a conference call Monday morning to disclose what they intended to do with their $98 billion cash hoard. In the event, investors who hoped that some of this liquidity, which amounts to $104 per share, would be used to pay the company's first-ever dividend got their wish.