Why Wedbush’s Daniel Ives raised his Apple price target to $265 (video)

Apple, he says, has committed to spending $6 billion per year (per year?!) on original movies and TV shows.

The Street’s focus is around gauging the consumer appetite for another content provider with Apple officially entering the ring with the likes of Netflix, Disney, and Hulu among others.

It is a crucial time for Cupertino as it recently launched its trifecta of new smartphones with iPhone 11 strong out of the gates thus far and now looks to convert millions of Apple device users on to its streaming platform. Taking a step back we remind investors of the “show stopping” low price for Apple’s streaming TV service at $4.99 per month taking a major shot at its content competitors with Netflix front and center as clearly Cook & Co. are looking for market share coming out of the gates with this price point that we loudly applaud. In our opinion with an installed base of ~900 million active iPhones worldwide we believe Apple has an opportunity to gain 100 million consumers on the streaming front in the next 3-4 years. We note that Apple is offering Apple TV+ free for a year with the purchase of an Apple device to help stimulate demand for its trifecta of smartphones and build loyalty on the services, which we believe is a smart move.

Apple Full Court Press on Streaming. Apple has a compelling list of new shows coming out as we believe it has committed ~$6 billion annually to the original shows and movies to beef up its streaming content ambitions going forward. This is a significant step up from the $1 billion that was originally believed to be the annual budget as the company tries to keep pace in the content arms race.

Maintains Outperform rating, raises price target to $265 from $245.

My take: With Nov. 1 launch of Apple TV+ just around the corner, at least four analysts have dusted off their Apple spreadsheets so far this week.

  • Wedbush’s Ives: Outperform, $265
  • Cowan’s Krish Sankar: Outperform, $250
  • Longbow’s Shawn Harrison: To Buy, from Neutral, $260.
  • T. Michael Walkley: Buy, $260 from $240

UPDATE: Ives and Sankar were just on CNBC.

4 Comments

  1. John Frantz said:
    100 million streaming customers at $60 per year is interestingly equal to the committed ~$6 billion annually.

    1
    October 11, 2019
  2. Gregg Thurman said:
    I see everyone estimating Apple TV+ subscribers as coming from the iPhone installed base.

    No mention is ever made of those potential subscribers coming from other user bases, like Android, or how Apple TV+ may expand the iPhone user base.

    I think 3-4 years to achieve 100 million subscribers is conservative. I also believe AppleTV+ will not be $4.99/month at that time (much closer to $9.99/month).

    Think in terms of everyone’s GM% estimates for Services. $4.99 won’t get you 50% margins (let alone 60% or 80%) even if you get 100 million subscribers.

    0
    October 11, 2019
  3. Kirk Burgess said:
    The $6 Billion dollar figure is nonsense – it is NOT an annual figure.’

    Simple math dictates that the content budget is under half that amount.

    Based on announced series and estimated per episode costs it is likely well under half that cost, closer to $2 Billion probably.

    “The morning show” was revealed as the most costly tv show per episode ever made – and that was $15 million per episode ($150 million for 10 episodes). There’s several other shows that are probably in the $5-$10 million per episode range (See, For all mankind), but most of the other announced series (and the several movies) are of a much smaller budget.

    We can use “THE MORNING SHOW” budget to look at how off the $6 billion annual estimate is. It would take 400 Episodes of the most expensive tv show ever made to reach $6 billion in annual content cost. Now consider that the average episode cost of the Apple shows is likely closer to $5 million than $15 million, which means Apple would need 1200 episodes of content to reach a $6 billion total (announced series account for less than 300 episodes so far)

    What I think is confusing people is the large MULTI-YEAR deals offered to Oprah etc, which are being included as annual repeating costs (which they are not).

    1
    October 11, 2019
  4. Gregg Thurman said:
    This from Wedbush’s Daniel Ives (courtesy Barron’s) today:

    (I’m paraphrasing Barron’s) “He sees 100 million Apple subscribers within four years as realistic and thinks that could lead to $7 billion to $10 billion in annual revenue.”

    Doing the math: 100 million subscribers generating $7 Billion per year equates to a monthly subscription rate of ~$5.80. Ten billion $$ per year equates to a monthly subscription rate of ~$8.80.

    It would appear that some WS residents are already factoring in future rate increases for Apple TV+.

    My $9.95 (minimum) rate would generate $11.940 Billion per year (100 Million paid subscribers). An annual production budget of <$3 Billion (I agree with Kirk's analysis) results in ~75.00% GM. Deducting nominal (10%?) S, G, & A and (16%?) taxes reveals ~$1.93 EPS (assumes end FY2022 ~3.5 Billion shares outstanding). A 20.069 multiple (today's closing multiple) increases AAPL by ~$38.75. This represents a 16% increase over today's Close, without accounting for growth potential from any of Apple's other (existing or new) product categories or continued multiple expansion.

    0
    October 11, 2019

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