Goldman Sachs doubles down on $165 Apple target

Analyst Rod Hall takes a deep dive into TV+ cost accounting and says Apple is headed for a fall.

From a note to clients that landed on my desktop Monday morning:

We continue to believe that the methodology for accounting for the TV+ Trial effectively shifts revenue out of Apple’s Product line and into the Services line, thus boosting apparent revenue growth for Services. In this report we take a deeper look at ASC 920 and ASC 926 cost accounting methods for content similar to what Netflix and Disney use and calculate margin implications for TV+ should Apple follow a similar accounting methodology. We conclude that Apple is likely to be able to offset the initial negative impacts of the TV+ trial through better hardware gross profit. However, we believe that the TV+ free trial and the accounting for it as Services revenue sets Apple on a course toward much higher content investment or extension of the free trial or both by the end of 2020.

Maintains Neutral rating and (near Street low) $165 price target. 

From Hall’s note: Best estimates of Apple TV+ individual show costs I’ve seen yet.

goldman sachs apple 165

Click to enlarge.

My take: Hall went out on a limb earlier this month with a complex accounting story nobody else picked up on. With the stock trading 30% above his 12-month price target and earnings due out in two days, he may have just sawed it off.

Small print:

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

See also: Watch Goldman Sachs’ Rod Hall defend his $165 Apple price target


  1. victor castroll said:
    couple issues with Rod’s report.

    1. his show count is a CYA. everyone in hollywood knows Apple’s working on 65+ shows. so, right there, number is doubled.

    2. everyone in hollywood knows tentpole shows got 3yr guarantees. you don’t get that talent offering them two years. nice try. ps – GUARANTEED.

    3. while the 30 – 45 unnamed shows generally skew lower budget, his entire budget number is off by 500 – 1000bp.

    folks, quick question.

    who does Hollywood bank with?

    what does this news mean to the laymen on this board?

    do you want the nice answer or the band-aid rip off answer?

    rod gave you the light tap answer.

    i’ll give you the nine cover my ass answer because no one owns my ass. (except Hanro. i use Hanro for all my male underwear needs. Rumors of my financial death are greatly exagerated.

    ps – good luck with hollywood economics and accounting.

    pps – you have no f’ing idea of the FASB and CAC truck that’s about to run your ass over.

    but, good news. we WANT the price to drop. MAN DEL BAUM. MAN DEL BAUM. MAN DEL BAUM…

    October 28, 2019
    • David Drinkwater said:
      Rod Hall wants to improve his golf game?
      I recommend lots of study and lots of practice.
      Maybe get out of the office sooner, rather than later?

      October 28, 2019
  2. David Emery said:
    Why does the accounting category impact the AAPL bottom line? This argument seems silly to me.

    October 28, 2019
    • Aaron Belich said:
      Because Apple has never been good with their finances. Remember!?

      They are DOOMED!!


      October 28, 2019
  3. Gregg Thurman said:
    Hall’s accounting is missing a key point.

    Hall is expensing production cost in total in one year.

    Apple will be expensing production costs over multiple years (thereby increasing gross margin), or, if Apple does expense in a single year, subscription revenue attributed to new viewers will have no expense component, thereby increasing gross margins.

    As I understand Apple’s accounting intentions it will expense each episode over a two year period.

    Further Hall gives no thought to those that will not buy a qualifying Apple product and subscribe anyway (me for one), nor does give credit to the fact that of the expected sale of approximately 200 million devices during FY2020 a great many will be sold to persons buying two or more devices in the rear, or will be Apple TV+ users by way of the 5 family member account plan that is Apple TV+.

    In other words, the hit to device gross margins will be slight, while total users will grow rapidly leading to second year windfall.

    Further #2 it is entirely conceivable that on the conclusion of the one year free promo, new subscription revenue (being mostly, if not all, monthly) will be immediately recognized vs being recognized over a one year period, and will not involve a hit to device revenue.

    I could go on, but you get the idea.

    October 28, 2019

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