May 29 (Reuters) – Apple’s $3 billion purchase of
headphones and music business Beats shows exactly how foggy our
thinking about the distinction between ‘cheap’ and ‘affordable’
At first glance the deal, which values Beats at about three
times more than when it sold a roughly 50 percent stake in
itself to the Carlyle Group in September, appears to be at a
very rich valuation.
And yet in analyzing the deal, media and analyst reports lay
stress on how the deal is only about 0.5 percent of Apple’s
massive market cap. Or better yet, that the $2.6 billion cash
portion of the deal is only 1.7 percent of Apple’s $151 billion
cash hoard as at the end of March.
Seriously, people, that’s how percentages work: if you take
a large number like, say, $3 billion and compare it to a very
large number like $151 billion you will come up with a small
percentage. That does not imply, however, that because one is
small in comparison to the other it is cheap or even a good
deal, only that it is affordable.
This kind of thinking is rife in the markets for tech assets
which are bubbly, and may really only demonstrate that things
are out of whack.