Apple may be struggling to raise revenues as fewer iPhone users buy new devices, but the tech giant’s subscription streaming service Apple+ coming to an Apple device near you on Nov. 1 has a more positive story, Morgan Stanley analyst Katy Huberty forecasted Tuesday in a note.
The Morgan Stanley report sees Apple+ becoming a $9 billion a-year business by 2025 and pushing Apple’s services business to 20 percent growth in 2020.
And that’s even if many Apple device owners don’t pay anything for Apple+ — at least not at first, as the company is set to offer a year of TV+ for free to anyone who buys an iPhone, Apple TV or Mac device — and Apple’s TV content costs continue to rise.
“With an attractive price point at $4.99/month, and wide initial distribution to the Apple installed base via the bundled free year offer, we estimate Apple TV+ can become a $9 billion revenue business with 136 million paid subscribers by FY25, assuming just one in every 10 Apple user pays for the service by FY25,” Huberty wrote.
That forecast of 136 million subscribers worldwide by 2025 as a base case (Huberty’s projections range from 68 million to 175 million paid users) helped send shares in Apple to a new all-time high of $243.18 on Wednesday. The company earlier said it didn’t expect launch costs for Apple+ to have a “material impact on our financial results.”
Huberty agrees, as her Morgan Stanley analysis expects Apple+ TV users eventually becoming paid subscribers will offset content costs and operating expenses. “For Apple TV+ to have a more material impact to our near term estimates, we’d have to assume 1) Apple TV+ production costs are significantly higher at the launch of the service, and/or 2) more users redeem the Apple 12-month free offer with the purchase of a device,” she wrote.
The launch of Apple’s revamped TV app comes amid a push by the iPhone maker to double down on its services business, which houses revenue from subscriptions like Apple Music and iCloud. “With a growing list of catalysts, including accelerating Services growth and multiple expansion ahead of the 5G iPhone launch, and an attractive 8 percent total dividend + buyback yield, we continue to view Apple as our top pick into 2020,” Huberty added.
The bottom line has the Morgan Stanley analyst seeing far more hidden upside for Apple from its upcoming streaming service and services division growth being revealed down the road. Apple+ is launching in over 100 countries with a slate of originals that includes The Morning Show, the Hailee Steinfeld starrer Dickinson, the Jason Momoa drama See, the space drama For All Mankind and the documentary The Elephant Queen.
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