Analyst: Video Service Highlights Apple's 'Law Of Large Numbers Problem'

Raymond James was one of several firms to weigh in on Apple Inc. AAPL Thursday, discussing just how much of an impact the company’s new video streaming and news services will have on the company’s bottom line.

The Analyst

Raymond James analyst Chris Caso reiterated his Market Perform rating for Apple.

The Thesis

Apple has a special event scheduled for March 25 at which it is expected to unveil both a streaming video service and a news service. Caso said investors can expect only about 12 cents in incremental earnings per share from the new services upon launch. He said Apple is unlikely to provide many concrete financial details at the event.

“While we don't yet know the full details of the offerings, we think we know enough to be able to make modeling assumptions, and even during the event Apple won't typically provide many financial details aside from pricing,” Caso wrote in a note.

The minimal earnings impact of the new services highlights what Caso said is a “law of large numbers problem" Apple has.

Because the iPhone business is so large, Apple’s new products and services will have to be tremendously successful to move the needle of its overall business. For example, to meaningfully impact overall EPS, Caso said Apple’s streaming video business would need to be “several times” the size of market leader Netflix, Inc. NFLX.

While Apple is testing the waters on several long-term growth projects, including news and video, Caso said Apple’s stock will continue to tied closely to the iPhone until sales numbers stabilize.

Price Action

Apple's stock traded higher by 1.2 percent Thursday to $183.89 per share.

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