Rod Hall’s head-snapping $165 price target dismissed in 25 words.
From Apple PR:
We do not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results.
My take: Folks here had come to the same conclusion on their own. Meanwhile, the silliest headline come out of the whole kerfuffle (from Forbes, naturally):
Why You Should Sell Your Apple Stock Before It Falls 26%
See also:
“but what if rod, forbes and i are right?”
I’m assuming what you agree on is that AAPL drops down to $165/share. IF you’re right, it had better be for something other than some free movies showing up as lowering the ASP of Apple products. Apple will be offering one-year free trials of Apple TV+ to purchasers of an iPhone, iPad, iPod Touch, Apple TV, or Mac. My wife and I are buying two iPhones and an Apple TV. And we only need one TV+ subscription. Some families that only need the one TV+ subscription will buy two or three times that many applicable Apple devices.
And in the meantime, Apple makes money on the subscriptions it does sell.
None of that was taken into account by Rod Hall’s rushed out story. I figure that the “hit” to Apple ASP’s will be a third to a quarter or less of the figure Mr. Hall calculated. Basically a rounding error. Big whoop.
No way that all (nearly) 300M people buying Apple devices in the next 12 months would also pay $60 for Apple TV+ subscription if it weren’t included. That’s what using $55-60 value assumes. I think $5 is fine. Those that redeem the offer would very likely be willing to pay 5 to try for month. Hard to make any assumptions beyond that point. Consider it a 1 month free trial with 11 extra months.
I see the impact as a net $0. Nada. Zilch. One could even argue that disrupting the upgrade cycle to an earlier point is the gift that keeps on giving. At any rate, this is a big nothing burger. This analyst is a slob that’s trying to take the only crumbs presently available and create a negative narrative around his atrocious share price call. I’m going to call it what it is—complete and utter bullshit. I’ll also say this is ultimately a 12month positive. Apple hopping out of the weeds to defend the company tells me as much.
I failed to fully appreciate the impact of multiple devices per household, and the 5 family members per account, when generating my paid subscriber estimate yesterday.
I’m now in agreement with Wedbush’s estimate of 100 million paid subscribers in 3 – 4 years.
That’s still $1.5 Billion per quarter in additional Services revenue. But doing this calculation got me to thinking about how long this promo will be offered and the duration of the freebie in future periods.
Did I miss something in the announcement? I haven’t been able to find any reference to how long Apple will be offering the one year freebie. Will the promo end after the December quarter, the March quarter, or……? Will the duration of the offer be reduced from one year to 90 days after the December quarter, and end entirely after the March quarter?
With all the unknowns about how long the freebie promo will be offered, or the duration of any such promo after the December quarter, I’m now finding it hard, if not impossible, to calculate long term revenue benefit.
Given the above, Hall’s financial impact is ludicrously short sighted.
OTOH, I’ve seen more than enough from Hall and Fortune to heavily discount their missives.
What if you were to think more deeply?
1. how big are rod hall’s balls? yuge. he’s punking his Card partner.
and
2. speaking of Card, there’s no way anyone at $GS can see the data. right?
ps – if you believe that, i’ve got some to sell you at $220.
pps – rod’s right. we’re going down. he chose an interesting number at $165. interesting indeed…
“If you combine potentially lower margins with the impact from tariffs, could -that- have a material impact on Apple’s next quarter results?”
I’m going to borrow shamelessly from Mark’s comment below: “…the net additions to the sticky installed base will be a recurring cash flow grand slam…”
It’s ALL about growing that installed base! If Apple is forced to accept lower margins or otherwise eat profit over the Trump Trade War, so be it. Far more essential to protect growth in it’s installed base. That’s what creates the “recurring cash flow” in the first place.
Which is me agreeing with Aaron’s much more succinctly put response above….
If Apple’s content generates any buzz at all, the offer likely will lead not only to some accelerated upgrades within the installed base but, more importantly, net adds to the installed base with the continuing migration of android users. For an opportunity cost loss leader (not cash loss, the streaming service is like software, zero incremental cost per single user after it is developed), Apple is betting that it will attract net additions to the installed base. Based on the content, I expect they will.
If so, the net additions to the sticky installed base will be a recurring cash flow grand slam for the imputed $60 subscription gift.
I was admittedly shaking my head, but so much of the world does not appreciate the aspire that Apple is building.‘