Analyst Amit Daryanani delivers the company line in all caps.
From “Post Management Chat and Detailed Analysis — Fears that Apple TV+ will Derail GMs are FAKE NEWS,” a note to clients that landed on my desktop Monday:
All You Need to Know: We have had multiple discussions addressing concerns regarding the potential impact of TV+ on Apple’s GM and EPS post a competitor note. After clarity from AAPL management coupled with our analysis, we see minimal financial impact and in aggregate think the impact to EPS will be immaterial. We would take advantage of any pullback to add to positions in AAPL stock. When a product is sold and the promotion is used it will essentially shift slightly less than $60 from the purchase price to deferred revenue. Assuming Apple runs the program through the end of FY20, we estimate they will give away ~250M TV+ subscriptions.
Management Comments: “The combination of a year of Apple TV+ with the purchase of a new device is accounted for as a bundle. For customers that we expect to redeem the offer of a free year of TV+ service, we will defer revenue from the applicable device sale based on the value of the service relative to the bundle and recognize the deferred amount over the year the service is provided. The deferred amount will be amortized as services revenue.”
Maintains Outperform rating and $247 price target.
My take: I took liberties with the headline. Professional courtesy prevented Daryanani from naming either Goldman Sachs or analyst Rod Hall. I’ve also skipped Daryanani’s math. But I include this accounting, which I found fascinating: