Goldman Sachs’ Apple guy revisits TV+ costs, raises price target

Apple hasn’t yet “opened the floodgates” for Apple TV+ subscribers, says analyst Rod Hall, which should staunch what he sees as bleeding.

The main financial takeaway from the launch is that shows likely more expensive to produce are being released more gradually while other shows are being dropped all at once. This should help Apple to maintain initial control of how much cost is added to the P&L with no matching revenue due to the free trial.

We also note that Apple does not appear to be aggressively promoting the free TV+ trial. Given the likelihood that existing Apple customers are unaware of the trial, we believe this lack of an initial advertising push likely leads to a slower take rate ramp which should also help drive a more gradual financial impact from the free TV+ trial.

We also believe that Apple may be wanting to test its delivery technology with less initial users before opening the floodgates to more. We continue to forecast a roughly 45% initial take rate but we note that the impacts to Apple’s financials ramp rapidly along with the take rate should the TV+ trial gain in popularity over time.

Maintains Neutral rating, raises price target to $192 from $188. 

My take: In his deep dive into TV+ accounting, Hall argued that giving users a free year of “The Morning Show” would carve big bucks out of iPhone sales revenue in order to fatten up Services. You could argue that a year of free Apple TV+ is more like a marketing cost.

See also: Goldman Sachs doubles down on $165 Apple target

10 Comments

  1. Fred Stein said:

    @Rod: Admit the error. You’ll get more respect.

    And especially since getting more free sign-ups is bullish long term.

    1
    November 6, 2019
  2. Gregg Thurman said:

    Goldman Sachs needs a new Apple guy

    That should read “Goldman Sachs needs an Apple guy”, as they currently don’t have one.

    From Hall’s statement: We also note that Apple does not appear to be aggressively promoting the free TV+ trial.

    Hall must not be an Apple product user. I have received some number (I wasn’t counting as they came in) of emails touting Apple TV+ in the last month or so.

    Emailing 1.2 Billion Apple users is extremely focused, direct mail marketing (most productive kind) and is cheap. Further, I have seen TV ads at friends’ homes (I don’t get broadcast or cable TV).

    Raising his price target to $192 must be a courageous move in Hall’s mind, but underscores just how uninformed he is.

    2
    November 6, 2019
    • Stephen Young said:

      @Gregg and a ton of advertising on Twitter as well.

      0
      November 6, 2019
  3. Fred Stein said:

    Slightly OT, but relates to Rod and Jeff not understanding Apple or tech. To be fair, the article below is deep in the tech weeds. If you’re in a rush, skip to the 5th from last para.

    https://forums.appleinsider.com/discussion/213642

    To Rod: Apple’s investment in the chip (let alone services etc.) keeps them competitive, hence profitable, for a long time.

    To Jeff: Apple’s investment in the chip IP is an extremely valuable asset created, and owned, by Apple an American company. If you hobble Apple in this race, you give China the advantage. I’m sure China’s top political leadership understand what is at stake. I’m sure very few US political leaders have a clue.

    4
    November 6, 2019
  4. Michael Thompson said:

    As previously disclosed, I submitted a SEC complaint against my buddy Roderick Hall about two weeks ago. Goldman Sachs bought 1.664 million shares of Apple during the second calendar quarter. Next week we’ll find out how many shares of Apple that Goldman Sachs bought during the third quarter.

    I’ll be forwarding that new information to the SEC. If GS continued buying millions of shares of Apple while their high profile analyst was constantly downgrading and ripping Apple, there will be a case for criminality. And it’s all a matter of record.

    I don’t just want to see Roderick lose his job, I want to see him arrested, prosecuted and imprisoned.

    Here’s the criminal animal Roderick Hall when he worked for JP Morgan Chase downgrading Apple in June, 2016 at the bottom:

    http://www.streetwisejournal.com/p-morgan-downgrades-apple-stock/

    3
    November 6, 2019
  5. Aaron Belich said:

    Yeeeeap, just got my new AppleTV 4K setup last night… $200 bucks to Apple’s revenue counter. Minus the 3% ApplePay+AppleCard.

    What was that about a loss of $60? I can’t hear you Rod over this content that I’m watching from Apple and everyone else…

    Really wish we had new hardware and a proper Apple game controller in the box vs decent 3rd Party Support.

    0
    November 6, 2019
  6. Gregg Thurman said:

    Really wish we had new hardware and a proper Apple game controller in the box

    Given the number of 3rd party hardware manufacturers for Apple peripherals, how long do you think it will take before someone licenses the “Arcade” controls interface and introduces one?

    1
    November 6, 2019
  7. John Konopka said:

    What happened today? Apple was slightly down all day then in the last 10 minutes someone came in and bought a lot and the shares spiked enough produce a small gain for the day.

    0
    November 6, 2019
    • Michael Thompson said:

      @John

      It likely means that we’re going much higher.

      0
      November 6, 2019

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