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Apple Completes Shazam Buyout, Strengthens Music Offering

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Apple (AAPL - Free Report) recently completed the acquisition of UK-based Shazam Entertainment, after receiving approval from the European Union (EU) on Sep 7.

The iPhone maker had announced the deal in December 2017. Shazam app, with its unique technology, can identify any song, TV show, movie or advertisement.

It is estimated that Apple is buying Shazam for $400 million, significantly lower than Shazam’s valuation of $1.02 billion.

Notably, Apple’s main competitor in the music streaming space, Spotify (SPOT - Free Report) , and Snap also bid to acquire Shazam. Reportedly, Spotify and Snap could not offer the price that Shazam was looking for, per TechCrunch.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM) | Apple Inc. Quote

How Will Apple Benefit From the Deal?

Shazam reportedly crossed 1 billion downloads globally in September 2016 and the app is used over 20 million times each day to identify songs, per Apple. This signifies the popularity of the app, which Apple is expected to cash in on.

Apple is now expected to use Shazam’s unique technology to identify any song, TV show, movie or advertisement, which helps it differentiate its services. This will boost engagement levels. Notably, Apple has more than 50 million users including people on free trials as of third-quarter 2018.

It is to be noted that Shazam’s music recognition app already works with Apple’s digital assistant, Siri.

Additionally, the acquisition will now allow Apple to offer features like television show recognition as well as augmented reality (AR) brand marketing service to App store users.

Moreover, Apple’s aggressive push into the AR market with related acquisitions and partnerships bodes well. The company bought several smaller firms with expertise in AR hardware, 3D gaming and virtual reality (VR) software.

Competition Intensifying

Apple faces intense competition from Spotify in the music streaming space. Additionally, players like Alphabet’s (GOOGL - Free Report) YouTube, Amazon and Sirius XM (SIRI - Free Report) post Pandora acquisition are expected to put additional pressure on Apple’s music streaming revenues.

Spotify, currently the dominant player in the paid, premium music streaming market boasts a user base of 180 million, up 30% year over year. The streaming giant’s premium subscribers soared 40% year over year to close to 83 million, in the second-quarter 2018. Growing premium subscribers for Spotify is a positive. They contributed to 90% of Spotify’s total revenues in the last reported quarter.

Alphabet’s YouTube Music streaming service, launched on May 22 this year, features “thousands of playlists, the official versions of millions of songs, albums, artist radio and more, in addition to all the music videos people expect from YouTube”, per the company. YouTube, which is used by millions of people, is boosting its content offerings, which remains a concern for Apple.

Amazon also has a premium streaming service called Music Unlimited. Though the user data is currently unavailable, Amazon did note recently that the service has “tens of millions" of paid customers.

Moreover, Sirius XM is all geared up to acquire Pandora in an all-stock deal worth $3.5 billion. The deal will bring together Sirius XM’s 36 million subscribers across North America and Pandora’s 71.4 million monthly active users (MAUs), thereby creating the world’s largest audio entertainment company.

Shazam Gives An Edge to Apple

Apple Music is witnessing increasing adoption as the company provides some revolutionary offerings. Moreover, Apple Music grew more than 50% year over year and continues to contribute to services revenues (17.9% of sales), which is a positive.

We believe Apple’s buyout of Shazam coupled with Apple’s aggressive push into the AR market can help the company differentiate its music service offerings and AR initiatives, thereby boosting the top line.

Apple currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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