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Remember Apple's bold plan to reinvent itself as a services-oriented company rather than its current focus on hardware products? Well one well-respected firm thinks Apple might hit a homerun rather quickly thanks to the company's upcoming Apple TV+ video streaming service.
Barclays analysts issued a note today estimating that Apple could entice 100 million or more customers into paying for its premium video streaming service called Apple TV+.
Courtesy of CNBC, Barclays issued the following statements in support of its claim:
- “We model 222M hardware devices sold by Apple over the next 12 months.”
- “We assume that about 50% of those buying a device in the first year will accept the service, yielding well over 100M subscribers a year from now. We exclude sales to China and our estimate of second and third devices at families.”
- “We assume that the trial period will last for one year, at which point we expect subscribers to decline as users opt out, and are partially offset by new additions. Of course the rate of churn will depend meaningfully on how quickly Apple can ramp up its content library.”
In summary, the Cuppertino-based firm is leveraging its dominant position in hardware in order to push its new service. Tim Cook made waves when he announced his company would be giving away an entire year of Apple TV+ included in the price of the purchase of say, a new iPhone 11 for example.
The claim is especially impressive when you consider that Netflix, the overwhelming leader in the streaming space, to count 158M subscribers. If Apple can catch up with roughly 63% of Netflix's large user base in a single year then we might be looking at an explosive growth driver when it comes to its stock price.
Barclays is using a major assumption for Apple TV+ estimate
Barclays bases its assumption of reasonable numbers with one major caveat: the 50% attach rate for the Apple TV+ service with device purchases. While reasonable, we don't have any real justification for this number beyond "its middle of the ground". Many iOS users probably have some mix of Hulu/Netflix/HBO/Amazon Prime, so its probably a lofty estimation.
However, even 25% attachment yields more than 50 million subscribers to its user base, and from that the data alone is worth mountains to the firm. They can quickly gauge which content is popular and use that to guide decisions when it comes to funding new projects.
When it comes to Apple's income statement, something quite interesting is going on here. Apple will take a $60 hit in the form of contra revenue on each device it sells, and will automatically transfer the $4.99/month per user to its services segment - so expect a major shakeup beginning on the Q4 earnings call slated for this January. Its services segment will get an instant boost and by years end it might be churning out $499 million per month in services for Apple TV+ revenue alone.
Barclays followed up today's investors note by raising its price target for Apple from $207 to $224 per share which is still below Apple's share price of $235, so it appears that Barclays is taking the wait-and-see approach despite the long term potential it sees in Apple TV+.