Apple TV+: Wedbush sees 100 million $10 subs within 3 to 5 years

From a note to clients by analyst Daniel Ives that landed on my desktop Friday:

We believe Apple’s goal here is to be a major distribution platform for content and with 1.4 billion active iOS devices worldwide, with the theme of family and a safer viewing platform. Cupertino is trying to differentiate itself vs. competitors and flex its Apple brand muscles to get more consumers on this “trustworthy” platform.

Apple has signed major Hollywood stars such as Oprah, Jennifer Aniston, Steven Spielberg, and Reese Witherspoon for its original content and this massive budget increase is a major shot across the bow to all content providers that Cupertino is done with just dipping its toe in the streaming pool and is ready to dive into the deep end.

With that said we believe Apple needs to be very strategic with this initiative as the success on this front will play a vital role in the services growth at Apple for years to come.

We continue to believe the company has the opportunity of capturing 100 million consumers on this streaming content service with this major, potentially game changing content distribution service. From a pricing strategy, we believe $10 per month will be the initial launch service fee offered to Apple customers, however we expect different bundled options with Apple Music and other services will also be offered at different price points.

If Apple executes with minimal speed bumps and aggressively acquires content… we believe reaching the 100 million subscriber number in the medium term (3 to 5 years) is a realistic goal that could translate into a $7 billion to $10 billion annual revenue stream over time for Apple and further cement its installed base and halo effect.

Maintains Outperform rating and $245 price target.

My take: To put that in context, Xerox is a $10 billion company. But as Ives warns, Apple has to execute for this to work. In other words, the shows have to be must-watch good.

See also: Apple’s The Morning Show gets the trailer it deserves

7 Comments

  1. Fred Stein said:
    While I’m a big fan of Ives and Apple, 100 Million seems high. Ives should benchmark his target against current competition and market size.

    As Tim Cook says, “We strive to make the best not sell the most.”

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    August 23, 2019
    • Gregg Thurman said:
      Fred, Apple has an iPhone installed base of about 900,000,000 that continues to expand. That’s 900 million people that want BETTER and are willing to pay extra for it.

      At $10/month AppleTV+ isn’t premium priced, far from it (new Netflix subscribers are paying $13/month).

      In my opinion, considering the number of homes with a TV and high speed internet access, 100 million is just scratching the surface of potential subscribers sitting on the sidelines awaiting intelligent quality. HBO has proved this (@$20/month) time and time again.

      Additionally, Apple can differentiate with streaming video far more, and far better, than it can/could with streaming music and look where Apple Music sits.

      I give AppleTV+ two years to hit 50,000,000 subscribers, and 3 years to hit 100,000,000.

      Now if we could just get POTUS to shut the f*ck up until November 2020 AAPL will trade at $300 by then.

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      August 23, 2019
      • Fred Stein said:
        I like your last comment, and your thinking in general.

        The wild card is users willingness to subscribe to video for phone use. Indeed, Apple may have a leg up because of the quality of the iPhone, more bandwidth on wireless, and Apple’s wondrous well-heeled user base. Will you and I promise to check back in three years?

        In the near term, might Apple offer bundles of the TV device and TV+ service? Might also include device upgrades.

        Fun to watch and speculate.

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        August 23, 2019
        • Aaron Belich said:
          Another curiosity, how many people will initially use AppleTV+ through a non-Apple device, and then get sucked into the rest of the ecosystem?

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          August 23, 2019
  2. Aaron Belich said:
    Apple knows how many users it has. They know how many devices under those AppleId’s cover. They know which apps go to which devices. They know which apps are used and how often (if customer shares this info for Analytics). They know who’s paying through App Store for premium content. Those are all things they can act on and target. Marketing will cover everyone else.

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    August 23, 2019
  3. Gregg Thurman said:
    “The wild card is users willingness to subscribe to video for phone use….
    …In the near term, might Apple offer bundles of the TV device and TV+ service? Might also include device upgrades.”

    I don’t think the primary market for eyeballs is the iPhone, although the larger screens make the “X” series more compelling for that. I think the primary market for Apple TV+ is Apple TV users, hence the name of the subscription service: Apple TV+.

    Apple has never addressed how many Apple TVs it has sold, especially the latest 4K model. I think the proliferation of Apple TV set-top boxes will be the limiting factor of Apple TV+ adoption. I also think users of Apple TV will be the early adopters of Apple TV+.

    So the question is: How many Apple TV 4K boxes are in the wild? Apple has been selling it since Sept 12, 2017. Has anybody got some insight into that?

    And will Apple TV+ spur a sales surge on Apple TV 4K boxes this December quarter (and thereafter) among users of older models?

    I still think Apple has some feature, as yet unannounced, that ties the HomePod together with Apple TV 4K and Apple TV+. If there is we will see a surge in sales for first and second HomePods.

    Here’s a couple of bundles to contemplate:
    Subscribe to one year of Apple TV+ ($119.88) and buy an Apple TV 4K ($179.00) and get $100 Store credit with any older Apple TV set-top box trade-in (net price $198.88). The net sales price of the Apple TV 4K would be $79.00 which is probably Apple’s COGS or,
    Subscribe to one year of Apple TV+ ($119.88) and buy a HomePod ($299.00) and get $100 Store credit. The net sales price of the HomePod would be $199.00, which is probably close to Apple’s COGS.

    The hit to gross margin would be the amount spent producing Apple TV+ during the period of the bundle. I’m projecting gross margin $ for this fiscal year to be ~$98 Billion (~38%). A reduction in gross margin $ of $6 Billion (assuming higher estimates are accurate) reduces GM% to ~35% (thinking of future years).

    Imagine the effect on subscriptions if the above bundles were offered each of the December quarters for this year and next.

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    August 23, 2019

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