Apple Inc. (NASDAQ: AAPL) made waves on Monday when the iPhone giant said that it will be officially announcing its break into the streaming video service on March 25. With this move, Apple will be looking to compete with the likes of Netflix, Disney, Hulu and others.
While the first steps in this video content framework will be its announcement on March 25 and adding content partners. Wedbush believes that Apple likely will get a 25% to 35% cut of monthly subscriber fees. The firm further believes this will only be the drumroll to a more transformative content acquisition during the course of 2019 for Apple.
Acquisitions have not been in Apple’s core DNA, but now seems to be the time, and building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A. Specifically, this needs to be with content to “double down” especially with its new video subscription service set to be rolled out.
Separately, the services business remains the wild card in driving the valuation higher for Apple, as Wedbush estimates the valuation of the services franchise for the company is worth roughly $400 billion on a standalone basis, with this highly profitable segment poised to exceed $50 billion in revenues by fiscal 2020 and doubling from fiscal 2016 levels.
Wedbush detailed in its report:
We (and many others) are finally getting what we hoped for and predicted as the company is set to announce its inaugural streaming video content service that will be a linchpin in further expanding its services wings into areas such as video content and potentially gaming over the next decade.
The new streaming video content service, which will likely officially launch in the fall, is still in the late planning stages and will include a host of content partners (e.g. HBO remains the biggest X variable) as well as original content from Apple with the company currently in production deals with Oprah, Reese Witherspoon/Jennifer Aniston, Steven Spielberg, and a handful of other projects as the company is spending roughly $1 billion on original content this year. However the company is definitely playing from behind the eight ball in this content arms race with Netflix, Amazon, Disney, Hulu, and AT&T/Time Warner all going after this next consumer frontier investing significantly more dollars ($20 billion combined and counting per annum) on content.
Wedbush issued an Outperform rating with a $200 price target, implying upside of roughly 12% from the most recent closing price of $178.90. Although, in its most bullish scenario, Wedbush sees Apple reaching as high as $215.
Shares of Apple were last seen up over 1% at $181.41, in a 52-week range of $142.00 to $233.47. The consensus price target is $178.88.