Excerpts from the notes I’ve seen. More as they come in, new notes on top.
Toni Sacconaghi, Bernstein: [Two] key takeaways from yesterday’s iPhone and TV+ announcements. 1) We view Apple’s decision to bundle a year of Apple TV+ with Apple hardware – and offer a low subscription price post-trial – as extremely clever. Apple TV+ will now potentially reach 200M+ Apple customers in its first year of existence. Even if only a fraction of those customers converts to paid subscriptions after 12 months – which at only $5 per month increases the odds of conversion – Apple TV+ could accumulate tens of millions of paid subscriptions by the end of 2020 – potential making it larger than Disney+. 2) Last year’s keynote was all about taking price – in contrast, this year’s keynote felt more about giving it back. In an unprecedented move for a new generation phone, Apple cut the price of the iPhone 11 (the successor to the XR) by $50. This means ASPs will probably be down for the first time since 2016, perhaps mid-single digits. How will this impact unit growth? We believe that remains the key near-term controversy for AAPL. Market-Perform. $205.
Wamsi Mohan, Merrill Lynch: Pricing TV+ to win the long game. Perhaps the biggest surprise at the event was monthly price for Apple TV+ service which was set at $4.99/month which is lower than we expected which makes it more attractive and can drive higher number of subscribers. Apple is including 1 year of Apple TV+ service with any purchase of a new iPhone, iPad, iPod touch, Mac or Apple TV which should help promote the service. We recognize the limited content at launch but Netflix launched 13 original shows in 2013 (not dissimilar to Apple’s launch) and Apple can build content by deploying capital. Apple spends $60bn in buybacks in one year which exceeds the total amount spent by Netflix on original content cumulatively since launch. Buy. Raises price target to $250 from $240.
Tim Long, Barclays: Lower Pricing is the Main Surprise. Today Apple announced new hardware products and provided updates on new services. We saw little surprises except for price points. The tv+ service is only priced at $4.99/month. The new iPhone 11 starts at $699, which is $50 lower than the XR last year. Also, the company did not raise the price of Apple Watch despite the 15% tariff. We believe lower ASPs make sense as price elasticity has really kicked in for iPhones this year. While all these actions should help units, we believe gross margins will come under more pressure. Equal Weight. Raises price target to $207 from $192.
Katy Huberty, Morgan Stanley: Product Launches Contribute to Growth Acceleration; Bullish into 2020. We see a combination of revenue growth re-acceleration and multiple expansion driving shares to our $247 PT. iPhone still accounts for just over 50% of revenue and gross profits even after replacement cycles lengthened to the level of notebook PCs, a structural ceiling in our view. Combining the aged installed base with new camera/battery technology this year and the upcoming 5G iPhone expected to launch in 2020 suggests there is now more upside than downside risk to this business. We see Services revenue growth accelerating as Y/Y comps become easier and new services like Apple Card and TV+ begin to impact the model. In fact, Sensor Tower data shows Apple App Store growth accelerated QTD through August and is tracking ahead of our estimates with an even easier Y/Y comp in the month of September. Net, we forecast 3% revenue growth and 8% EPS growth in FY20 after declines in FY19. We see both structural and product cycle drivers of multiple expansion. Apple’s P/E multiple has expanded by just over 4 turns since 2012 as Services tripled from 9% to 30% of gross profit dollars, and we see further multiple expansion as Services continue to outpace overall growth. Overweight. $247.
Andrew Uerkwitz, Oppenheimer: Apple Special Event Takeaways. We saw no surprise at today’s event. New Apple Watch Series 5 boosts company’s dominance in consumer smart watch category. New iPhones try to appeal to users by going back to the basics: lower price, more computing power, and better cameras. While Apple Arcade and Apple TV+ pricing seem competitive, their relative value and user retention potential are dubious at best when compared to competing service offerings. Perform. No price target.
Rod Hall, Goldman Sachs: iPhone price cut and naming change, TV+ free trial longer than expected. Apple’s big Fall event included a few important developments in our opinion. The first was a $50 price cut to newly named iPhone 11 without the “XR” appended. We see this as possibly in part due to Huawei competitive intensity in China but we also believe the $699 price point is more logical in Apple’s lineup. We see the combination of a lower base model iPhone price and the dual camera system as likely to drive even more unit volume out of the higher priced Pro lineup. In terms of services we had expected TV+ to be provided as a free trial with device purchases but we did not expect that trial to extend as long as a full year. This longer trial period equates to an even smaller likely earning contribution than the 0.4% we currently calculate in FY20. Hold. Lowers (!) price target to $187 from $189.
Amit Daryanani, Evercore: Monetizing the Install Base & Incentivizing HW Sales. Arcade is a seemingly straightforward way to monetize the install base by more directly entering a lucrative market (gaming ~75% of App Store revenue), while the TV strategy appears more nuanced. Apple is spending heavily on a limited number of originals (think HBO) while aggressively undercutting competitors on pricing and offering the service as a product incentive. Its possible Apple sees TV+ as more of a way to incentivize iPhone sales in a year when consensus is calling for declining iPhone revenue. Outperform. $238.
Aaron Rakers, Wells Fargo: Surprising TV+ & Arcade Pricing. One of the biggest surprises was Apple’s announced pricing for its Apple TV+ streaming service (and Arcade) at $4.99/mo. vs. Netflix ($12.99 standard), Disney+ ($7.99 at Nov 12th launch), and HBO GO ($14.99). With a free 1-yr Apple TV+ and Arcade subscription included with any new hardware purchase or upgrade, Apple is clearly focused on leveraging a subsidized pricing strategy to drive a user base as content expands (note: reports have highlighted estimates of $6B+ content spend; likely amortized over time). We plan to be focused on any additional metrics related to the company’s monetization of these new services. Market Perform. $215.
Samik Chatterjee, J.P.Morgan: Positive Surprises Through Competitive Pricing. We came out largely positive from the event led by 1) Lowered Pricing of iPhone 11 relative to XR, which could act as positive driver for volumes in entry level premium smartphone segment, while maintaining robust pricing for the other two higher end models; and 2) Favorable pricing for Apple TV+ and Apple Arcade, which makes us positive on the potential ramp of these new services… Believe Apple TV+ to be the biggest surprise from the event with favorable pricing relative to competition. Overweight. $243.
Michael Olson, Piper Jaffray: AAPL Event Takeaways. As expected, updates can generally be described as more incremental than dramatic. For iPhone, the expectations going into the event regarding improved cameras and faster processors were largely accurate. Apple introduced a triple lens camera for iPhone 11 Pro, while the iPhone 11 is the successor to the Xr, with improved features, but $50 lower ASP. Apple also detailed TV Plus and Arcade, both of which are $4.99/mo and neither of which we expect to be material to estimates near-term (i.e. at least the next couple of years). For the remainder of FY19 and into FY20, we expect limited excitement around the iPhones announced today, however, as long as services and non-iPhone devices continue to perform well, this should tide investors over until anticipation for 5G iPhones intensifies. Overweight. $243.
Daniel Ives, Wedbush: Cook Focused on iPhone 11; TV Streaming Pricing a Shocker. The pricing of Apple’s streaming TV service at $4.99 per month is a “show stopper” and a major shot across the bow at the likes of Netflix and Disney among others. The Street was anticipating a $7.99-$9.99 price point as clearly Cupertino is looking for market share coming out of the gates with these surprising price points that we loudly applaud. In our opinion with an installed base of 900 million active iPhones worldwide we believe Cook & Co. have an opportunity to gain 100 million consumers on the streaming front in the next 3-4 years. Outperform. $245.
Gene Munster, Loup Ventures: Positive Surprises Through Competitive Pricing Across iPhone 11, Services, and iPad. The pricing of both Apple Arcade and Apple TV+ is more aggressive than we expected at $4.99/month. Apple has the advantage of monetizing an entire ecosystem (hardware, software, services), which allows them to effectively subsidize Apple TV+. Similarly, Disney has the advantage of an entertainment ecosystem built around strong IP that allows them to bring down content costs and subsidize Disney+. Netflix doesn’t enjoy the same ability, which represents a threat to their pricing power. Missing from the event were new AirPods and the widely rumored Apple Tags.
Neil Cybart, Above Avalon: Overall impressions. This was another all-around solid event for Apple. It’s fair to say Apple met what were somewhat elevated expectations. The feeling around Steve Jobs Theater was one of approval. The press, a group not known to be easy to please, was pleasantly surprised by the announcements. Apple Arcade and Apple TV+ pricing came in below consensus expectations. Meanwhile, several of the iPhone camera upgrades were viewed as noteworthy with many coming away impressed with the new iPhone colors and finishes. The entire new flagship iPhone line is impressive up close and in hand.
Ben Bajarin, Creative Strategies: The new A13 Bionic processor with its neural engine and increased us of AI in its architecture is a big deal. At the moment, this is the most powerful CPU and GPU ever created for a smartphone. This is the picture of the Bionic 13 processor features.
One important piece of this processor is the neural engine. Apple has been developing this for a while and with the A13 it looks to take a leap forward. It has a lot of functions, one major one I will get into in the next bullet point, but it plays a major role in how it manages tasks and allocates how much power is used for any particular app. This, in turn, helps manage battery life. The A13 Bionic processor can handle one trillion transactions per second and has 8.5 billion transistors packed into it. Apple’s silicon engineering team had stage time for the first time ever at an iPhone presentation and emphasized the importance of Apple designing everything down to the transistor of their own silicon. This is one of the primary reasons Apple’s smartphones have more computational capability than their competition and why even several year old iPhones can still outperform many of the latest smartphones sold all over the world.