Week's Winners and Losers: Apple Beats On, Southwest Hits Turbulence

Apple's acquisition of Beats -- its biggest ever -- is in niches it needs, and Southwest paid a $200,000 fine for a missing discount.

×
Southwest Airlines
Amy Sancetta/AP
A consumer tech giant made the biggest acquisition in its history, and a popular discount airline paid the price for not discounting the way it said it was. Here's a rundown of the week's best and worst in the business world.

Southwest Airlines (LUV) -- Loser

The "bags fly free" airline loves to jab at its competitors for slapping extra fees on everything from luggage to legroom to hide their true total fares, but Southwest's advertised rates sometimes lack integrity too. Southwest messed up late last year when it promoted $59 fares for certain popular routes that it never ultimately offered at that price.

The unfortunate episode came to a head this week when Southwest was fined $200,000 for deceptive marketing. It was a rare misstep for Southwest, and now it's paying the price in more ways than one.

Apple (AAPL) -- Winner

After weeks of speculation, Apple finally announced that it would pay $3 billion for Beats Electronics and Beats Music. Some have questioned the deal. Is Apple paying too much for what will be the largest acquisition -- by far -- in its history? Is the consumer tech giant desperate? Is this the end of organic innovation at Apple?

Settle down. This purchase is a brilliant move. Beats Electronics is the leading marketer of premium headphones, and this gives Apple a high-end accessory category that it hasn't excelled at on its own. It also gives Apple a neat way to play the popularity of rival platforms since headphones, naturally, are operating system agnostic.

Beats Music also gives Apple a foothold in the booming on-demand streaming category. It may have just 250,000 paying subscribers, but this is a market where Apple had struggled to obtain music label licenses. Apple only had the discovery-based iTunes Radio where listeners can't stream the exact song or playlist they crave. Beats Music solves that dilemma.

Western Digital (WDC) -- Loser

There's a surprising service missing from Western Digital's new set-top media player. WD TV has plenty of slick features and it plays all of the popular file formats, but it somehow doesn't support Netflix (NFLX) streaming.

Fans of WD TV will argue that not everybody uses Netflix or Vimeo, but the same can be said about all of the less popular services that it does support. Netflix has 48.4 million subscribers worldwide. Even Netflix's 12.7 million members outside of the U.S. are a large enough audience to justify addresses this lapse. If the WD TV wants to be the set-top device to replace all set-top media players, it needs to offer access to the more popular streaming platforms.

Sirius XM Radio (SIRI) -- Winner

More than half of the satellite radio receivers in cars are inactive, so Sirius XM Radio is waking up all of those idle receivers to offer 60 channels of its talk and commercial-free music stations through June 2.

It's a smart move since the hardware is already in place and it doesn't cost much to activate those tens of millions of dormant receivers. It ran a similar promotional stunt four months ago, and it has offered shorter free previews often in previous years. If even a tiny fraction of those enjoying the preview decide to stick around as paying customers, it will be a successful business move.

Costco (COST) -- Loser

You won't often see the leading warehouse club operator on the wrong side of the market. Costco is a investment and political darling that's praised by those on the right for its lean operations and business-pumping expansion and praised by those on the left for its high wages and employee satisfaction scores.

Unfortunately, something's starting to go wrong on the way to the bottom line. Costco reported a reasonable 7 percent increase in sales in its latest quarter, but earnings climbed just 3 percent. More importantly, this is the fourth quarter in a row that the provider of savings in bulk has come up short against analyst profit targets. Sales and comparable-store sales may be holding up just fine, but Costco is beginning to struggle where it has excelled in the past.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Apple, Costco Wholesale and Netflix. The Motley Fool owns shares of Apple, Costco Wholesale, Netflix, Sirius XM Radio and Western Digital. Try any of our newsletter services free for 30 days.


Increase your money and finance knowledge from home

Bonds for Beginners

Learn about fixed income investments.

View Course »

Socially Responsible Investing

Invest in companies with a conscience.

View Course »

Add a Comment

*0 / 3000 Character Maximum