Given the massive scale of Apple Inc. (NASDAQ:AAPL), company acquisitions probably won’t make much of an impact on AAPL stock — at least during the short-run. This would be the case even if the company did something like acquire Time Warner Inc (NYSE:TWX) or Twenty-First Century Fox Inc (NASDAQ:FOX).
So AAPL’s recent deal for music-app developer Shazam really looks inconsequential. Hey, the price tag was a mere $400 million!
But taking the long view, I think the deal highlights some important factors for AAPL stock.
Why Shazam?
Before I get into that, though, let me give you some background on Shazam. Founded in 1999, the company was one of the first apps on iTunes. Shazam allowed users to use their smartphones to recognize songs. For the most part, the app showed the tremendous power of iOS and helped propel sales of the iPhone. Shazam was also an early example of the power of AI (artificial intelligence) and machine learning.
And while the app would remain highly popular, achieving a user base of over 100 million and more than 1 billion downloads, the business itself was a disappointment. Perhaps the reason was that Shazam was more of a feature, not a complete product. Because of this, it probably was tough to monetize.
But the situation should be much different for APPL. If anything, the company has an unfair advantage because it controls the distribution of the iOS platform. AAPL also has a huge treasure trove of cash to devote to engineering and marketing resources for the app. It would not be surprising to hear lots of buzz about Shazam in the coming months.
While AAPL has provided few details on its plans, the company has indicated that there will be integration with Apple Music, which seems like a slam dunk. This will also be helpful in dealing with the competitive threat of other music streamers, especially Spotify. Keep in mind that AAPL’s streaming service has 30 million paid subscribers whereas Spotify has twice this amount.
With Shazam, Apple can add more pizzazz to its offering. But users will have another way to discover music, which should help keep up engagement, as well as lead to more subscriptions. For the most part, Shazam will provide tremendous data to personalize the experience. All these are big wins.
Yet the acquisition Shazam is also more than just a play on music. Note that the underlying technology could be key for AAPL’s ambitions to get a piece of the home market — and fight against Amazon.com, Inc.’s (NASDAQ:AMZN) Echo and Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG) Google Home. What’s more, Shazam has built sophisticated systems for visual recognition, which could allow for cool AR (augmented reality) applications.
Bottom Line on AAPL Stock Price
Again, when it comes to AAPL stock, it would probably not be a good idea to trade on the Shazam deal alone. It’s just too small. Yet the acquisition is still encouraging, as AAPL continues to take a strategic approach to acquisitions, such as focusing on huge markets like music, AR and AI. These will be critical for providing sustainable growth.
In the meantime, as I’ve written previously at InvestorPlace.com, I remain bullish on AAPL stock. True, the shares have languished recently, but this seems more to do with a rotation in the markets than any fundamental weakness in Apple Inc.
Besides, AAPL stock is still trading at attractive levels, with a forward price-to-earnings multiple of 14. By comparison, GOOGL trades at 25 and Microsoft Corporation (NASDAQ:MSFT) is at 23.
And, yes, there are some nice catalysts for the next few quarters, as the iPhone X is likely to gin up lots of revenues for the company.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
