Image Shown: Apple announced that Apple TV+ would launch November 1, 2019, during its big update event on September 10. This marks the beginning of Apple’s transition from a hardware and software company to a hardware, software, and services giant.
By Callum Turcan
On September 10, Apple Inc (AAPL) held its big hardware and software event but the real star of the show was services. Namely, Apple TV+ which will launch this upcoming November 1 at the relatively low price of just $4.99 per month. That’s below the starting price point offered by Apple’s (future) video streaming competitors including Netflix (NFLX), Walt Disney Company (DIS), and others. Apple is coming out swinging with star studded launches of its own exclusive TV shows including “The Morning Show” staring Reese Witherspoon, Jennifer Anniston, and Steve Carell along with “See” staring Jason Momoa. Furthermore, Apple is offering a free year of Apple TV+ with new purchases of iPhones, Macs, Apple TVs, and iPads.
We continue to like Apple in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios, and our fair value estimate for AAPL stands at $222/share. Apple shares yield 1.4% as of this writing. The low starting price point of Apple TV+ will likely generate a lot of excitement around the offering, which we like, but we caution that Apple will probably need to raise its starting price point in the future.
Before then, Apple is launching gaming subscription service Apple Arcade on September 19, which also starts at $4.99 per month. That launch includes adding a new Arcade tab within Apple’s app store, adding new games each month to the gaming subscription service, creating a personalized list of games users should consider playing, game trailers, game guides, and likely other additions as well that are related to the gaming world. These are mobile games for a broader audience, not to be conflated with the more time intensive and competitive games that are for relatively narrower audience groups. Games within Activision Blizzard (ATVI) Call of Duty or Electronic Arts (EA) Battlefield franchises, for example, are for a different crowd than those who would primarily spend their gaming hours on their phone, but there’s some overlap of course.
Apple Arcade is going up against Alphabet (GOOG) (GOOGL) Google Play Pass offering, which is expected to launch soon. Just like with Apple TV+, Apple is running into some major competitors right out of the gate. However, Apple has very deep pockets and the ability to pours billions upon billions into these ventures while still adding cash to its already enormous net cash position (via its strong free cash flows). By utilizing its existing ecosystem and amazingly strong brand power, Apple has a fighting chance.
Beyond services, Apple announced that its new mobile operating system iOS 13 is coming September 19 and that iOS 13.1 will be available September 30, which comes with additional features. Apple announced three new iPhones; iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max, along with the Apple Watch Series 5. The company also reduced the price tag on some of its older offerings in order to broaden its customer base and ecosystem at-large.
Overall, the market seemed to like Apple’s big update and bid shares of AAPL up on September 10, albeit only modestly. We continue to like Apple in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Additionally, we would like to highlight how a lot of the future value of Apple’s equity comes from the expected free cash flows its services segment could generate, in our view, which will steadily become more relevant in the medium-term.
Computer Hardware Industry – AAPL BB CRAY HPQ IBM TDC
Media Entertainment Industry – CNK DIS IMAX ISCA LYV MSG NFLX NWSA SIRI
Related – MSFT AMZN ATVI EA
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Callum Turcan does not own shares in any of the securities mentioned above. Apple Inc (AAPL) is included in both Valuentum’s simulated Best Ideas Newsletter and Dividend Growth Newsletter portfolios. Alphabet Inc Class C Shares (GOOG) are included in Valuentum’s simulated Best Ideas Newsletter portfolio. Microsoft Corporation (MSFT) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.