Apple TV+ Seen As Services Revenue Driver For Tech Behemoth


Investment bank Morgan Stanley on Wednesday raised its price target on buy-rated Apple (AAPL) stock, saying the upcoming Apple TV+ subscription video-on-demand offering will be a services revenue driver for the company.


Morgan Stanley analyst Katy Huberty reiterated her overweight rating on Apple stock and increased her price target to 289 from 247. Apple stock notched an all-time high of 243.17 in intraday trading Wednesday. On the stock market today, Apple rose 1.3% to close at 243.18.

The market is skeptical about Apple TV+ as an investment for the company, Huberty said. But she is upbeat on its prospects. Apple TV+ debuts Nov. 1 with a slate of exclusive, original programming. It will cost $4.99 a month, but Apple is offering one year of free service to customers who buy one of its devices, including iPhone, iPad and Mac.

Huberty forecasts Apple TV+ will help accelerate the company's services revenue growth to 20% in fiscal 2020. It will be accretive to earnings in fiscal 2021, assuming just one in 10 Apple users subscribe by fiscal 2025, she said.

Apple TV+ Could Gain 136 Million Subscribers By 2025

"The market view is that, with the launch of TV+, Apple is entering a new, more capital intensive market with a low probability of generating a positive return for shareholders," Huberty said in a note to clients. "Based on our in-depth analysis of the accounting treatment and economics behind Apple's soon-to-launch streaming video service, we disagree."

She expects the service to attract 136 million paid subscribers by fiscal 2025 as a base case. Her bear case has Apple TV+ gaining 68 million subscribers. Her bull case has the service reaching 175 million subscribers.

Services are an important growth driver for Apple as it seeks to further monetize its installed base of iPhones and other devices.

Apple TV+ joins an increasing crowded market in internet television. Netflix (NFLX), (AMZN), Hulu and CBS (CBS) are among the current players. Walt Disney's (DIS) Disney+ subscription service will debut on Nov. 12.

Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor companies.


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