Is Beats Electronics Worth $3.2 Billion? Some Analysts Aren't Convinced

Various media sources reported on Thursday that Apple AAPL would be interested in acquiring Beats Electronics, the popular headphone maker and music streaming distributor, for $3.2 billion.

Beats Electronics was founded by rapper and hip-hop producer-turned-businessman Dr. Dre and Interscope-Geffen A&M Records chairman Jimmy Iovine.

A couple billion dollars may be pocket change for the technology behemoth, but at $3.2 billion this would be Apple's largest acquisition to date. In fact, Apple has never acquired a company for more than $400 million.

Walter Piecyk of BTIG Research lays down the hard facts.

“$3 billion is less than two percent of the company's cash and less than ten percent of its annual free cash flow,” said Piecyk in a note to clients. “So in the grand scheme of things, it's not a deal that is going to have a material impact on results.”

Related: The Reasons Behind Apple's Reported Acquisition Of Beats

Nevertheless, Piecyk notes that a change in Apple's acquisition strategy will generate some questions for management and even the Board of Directors.

“We are struggling to see the rationale behind this move,” Gene Munster of Piper Jaffray wrote in a note on Friday morning. “Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand's sake.”

Munster noted that Beats does not have any intellectual property that would drive the acquisition justification beyond the brand. Instead, the analyst notes that Apple's cash should be utilized for acquisitions in the internet services space, which happens to be Apple's biggest weakness.

Apple's acquisition of Beats comes at a time when news sources are reporting that digital track sales fell for the first time ever last year as free streaming services (with an optional paid subscription service) such as Pandora P, Spotify and Rdio gain in popularity.

Apple has always been a leader in digital music sales and the company ventured into its own streaming music service that was launched in 2013. The service has never taken off as many had initially expected.

At least two analysts appear to be putting the pieces together.

Amit Daryanani of RBC Capital Market notes that Apple's acquisition may have more logic “than meets the eye.”

Beats could help Apple capitalize on the rapidly changing music buying behavior, which would give access to a popular brand name, wearable technology and benefit from the “creative management” of Jimmy Iovine, a long-time music veteran, according to Daryanani.

Apple would tap into Beats recurring revenue stream as users pay a monthly subscription of $9.99 a month. Beats also has a partnership with AT&T wireless customers for family plans.

Peter Stabler of Wells Fargo explains in a research note that Apple could gain a foothold on Android platforms through Beats' streaming music service.

However, Pandora is the only digital audio provider with audience scale and a broad ad format offering, according to Stabler. As such, Stabler believes that Apple will compete head on with Spotify and Rdio, not Pandora.

One thing that remains clear is that Carlyle Group CG may be in for a large pay day. The private-equity firm paid around $500 million for just under 50 percent of Beats just seven months ago.

If Apple completes a $3.2 billion acquisition of Beats, Carlyle Group will bank a near $1 billion profit.