Apple Inc. (NASDAQ:AAPL) confirmed announce it’s buying Shazam, the popular music recognition app. The numbers being thrown around would make this the largest Apple acquisition since the company bought Beats Electronics in 2014.
The move would help to bolster its Apple Music streaming service against Spotify, while also improving the Apple TV experience. In short, it’s all about boosting the Services revenue that’s become so important to Apple revenue and AAPL stock.
The Latest Apple Acquisition Is … Shazam?
Rumors began to fly on Friday that Apple is set to buy music recognition app, Shazam. According to TechCrunch sources, the official announcement of the Apple acquisition could come as early as today.
Even if the price is nowhere near the $1.02 billion Shazam was valued in 2015 —TechCrunch source estimates range from “in the nine figures” to $401 million– it stands to be the largest Apple acquisition since the company bought Beats Electronics and Beats Music for $3 billion in 2014.
What Is Shazam?
Shazam is a privately held, UK-based company. Launched in 1999, it’s become the most popular app for identifying a song based on a short snippet of music. Users hold their smartphone to a music source playing audio, and Shazam will quickly tell them the artist and song title. The service makes money by then directing the user to a service like Apple Music, where they can purchase the song.
Shazam has also expanded into TV show and movie identification with visual recognition. And more recently, it’s began to experiment with augmented reality.
While the company has never been hugely profitable –in 2016, TechCrunch says its revenue was $54 million, resulting in a pre-tax loss of $5.3 million –Shazam is incredibly popular. According to the company, its app has been downloaded more than one billion times. Rumors of a potential Shazam IPO have been circulating for years, but the integration of media identification and discovery made it a natural target as an acquisition.
Why Apple Would Want Shazam
One of the big Apple themes of 2017 has been the emergence of Services as a growing revenue source and long term driver of AAPL stock growth. The Services division has been clocking high double digit quarterly growth (in Q4 it grew 34% year over year) and it’s now the second largest source of revenue for Apple, after the iPhone.
The great thing about Services revenue is that it builds on Apple’s existing user base. It’s not up and down based on sales cycles the way iPhone or iPad revenue is. Consistent growth based on subscription services like Apple Music, and ongoing transactions from the App Store and iTunes is good news for AAPL stock, and the continued growth of Services revenue will help to reduce the reliance on hardware sales in the long run.
That’s why Shazam makes sense as an Apple acquisition. Apple already integrates Shazam functionality into Siri for Apple Music. But if it owned the company, Apple could integrate Shazam even deeper into its service. It would also have the option to stop supporting competitors — like Spotify.
Shazam’s video discovery functionality could also be integrated into Apple TV (another driver of Services revenue), helping to give it a leg up against video streamers from Roku Inc. (NASDAQ:ROKU). It doesn’t hurt that Shazam has been pushing into AR at the same time that Apple’s going all-in on the technology with ARKit.
It’s possible that Shazam’s features could help ARKit in it’s fight against Alphabet Inc.’s (NASDAQ:GOOGL) Google Android ARCore augmented reality effort.
Stay tuned for an official announcement. Naturally, neither Apple nor Shazam is talking at this point, but if TechCrunch is right, it could happen later today.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.