Monday’s reveal won’t send the stock higher, says analyst Samik Chatterjee, but over time Apple could grow into a strong No. 2 after Netflix.
From a note to clients that landed on my desktop Thursday:
With an abundance of predictions on the announcement already widely publicized in the press, we believe the event itself will not be a catalyst. However, as we look at the opportunity for the announcement to make a material impact on earnings in the future, we are primarily focused on long-term drivers that could set up the video service to establish itself as a strong competitor to Netflix over time…
Our focus relative to the announcement will be less on the original content shows that Apple is looking to launch and preview at the event, which as per news reports are expected to be closer to 20+ — small relative to the ~700 original shows that Netflix launched in 2018. We see the value in Apple’s attempt to differentiate with original content in the long-run, however, given the small number of original content programming relative to the industry leader (Netflix) and traditional media companies (HBO, Disney), we do not expect original content will be a significant differentiator and driver of subscriptions in the first few years of the ramp.
We are more focused on Apple’s ability to position itself as an aggregator of content from different content providers, including both traditional media content providers as well as smaller streaming services with more localized content. While Netflix is a strong leader in the category, we believe there is an opportunity to emerge as a strong #2 player by aggregating content from the multitude of individual content providers under one umbrella, which will drive significant convenience for consumers who are otherwise torn between individual subscriptions. Press reports have indicated that larger players are unlikely to join the service initially, but we expect smaller players would be more open to making content available on the platform to leverage the iOS installed base.
Maintains Overweight rating and $228 price target.
My take: A dash of cold water two trading days before an Apple special event is not a bad idea. The market’s muscle memory is to buy the rumor and sell the news.