Apple As A Service: Analysts Break Down Apple TV+, Apple News+ And Apple Arcade

Apple, Inc. AAPL had one of its most important new service unveilings in recent memory on Monday, giving fans their first glimpse at streaming service Apple TV+, subscription gaming service Apple Arcade and news service Apple News+. Unfortunately for investors, Apple didn't disclose several key details, including pricing for Apple TV+, pricing for Apple Arcade, guidance for content spending or any launch dates for the new services.

Several Wall Street analysts have weighed in on Apple following the event, many of which were disappointed with the lack of clarity Apple provided. Here’s a sampling of what they had to say.

Pricing Is Key

Bank of America analyst Wamsi Mohan said that, unfortunately, pricing is key for the streaming video and gaming services.

“As with any subscription service, user adoption depends on the price at which the service is offered, and any bundling of services which Apple may introduce,” Mohan wrote in a note.

Oppenheimer analyst Andrew Uerkwitz said Apple TV+ pricing is the biggest unanswered question following the event.

“Overall, it appears that Apple's new services provide better solutions to solve relatively niche problems in media business and they may prompt existing iOS users to stay more invested in Apple's ecosystem,” Uerkwitz wrote.

JPMorgan analyst Samik Chatterjee said Apple’s event provided more breadth than investors expected but less depth.

“Most incremental and differentiated to us appears to be the positioning of Apple Card, while Apple Arcade is also favorably positioned given limited similar services on offer,” Chatterjee wrote.

Monetizing User Base

Tigress Financial analyst Ivan Feinseth said the new services will help Apple better monetize its massive installed iPhone user base over time.

“I believe upside to the $220 to $240 range exists over the next 12 months and continue to recommend purchase,” Feinseth wrote.

UBS analyst Timothy Arcuri said the lack of details was frustrating, but the event marked a clear turning point for Apple.

“While recognizing the potential for the stock to consolidate some of these gains post-announcement, this is also the start of a broader and deeper services narrative - one that comes against a 900MM+ iPhone installed base, ~600MM of which don’t pay a dime in services,” Arcuri wrote.

Morgan Stanley analyst Katy Huberty said Services is the key to the next five years of Apple growth.

“We still believe Apple is likely to bundle hardware/services and/or multiple services over time, with our September 2018 analysis suggesting Apple could generate $22-37B in revenue by 2025 for an Apple Media bundle alone, up from $3.8B in 2018,” Huberty wrote.

No Immediate Impact

Cowen analyst Krish Sankar said Wall Street will likely get more bullish on the new services as the details trickle out in coming months.

“We continue to view Services as a LT investable theme and the 3/25 event that introduced the upcoming Apple News+, Arcade, and TV+ subscription offerings suggest a differentiated but gradual approach to establishing future growth vectors,” Sankar wrote.

Loup Ventures analyst Gene Munster said Apple’s new batch of services will add $20 billion in revenue annually by 2023.

“While we are maintaining our estimate of $78B in Services revenue in 2023, the levers to achieving that number are more clear,” Munster wrote.

Citi analyst Jim Suva said investors shouldn’t expect the launches to be a near-term catalyst for the stock because consumers are typically slow to adopt new offerings.

“However, we do see the next catalyst as the upcoming company earnings and capital deployment,” Suva wrote.

iPhone Sales In Focus

Goldman Sachs analyst Rod Hall said the markets focus will likely now return to slowing iPhone sales.

“Though all of these services are interesting from a platform churn point of view none seem likely on our calculations to materially impact EPS in the short term, with the possible exception of Apple Arcade pending pricing and service details,” Hall wrote.

PiperJaffray analyst Michael Olson said high-margin, highly recurrive subscription Services revenue is Apple’s solution to stagnating iPhone sales.

“We estimate TTM services revenue per active installed device grew 19% y/y in FY18 and Apple is layering on new services to drive strong growth of this metric for years to come,” Olson wrote.

Raymond James analyst Chris Caso said the market will likely see the new services as bullish for Apple, but it’s unlikely they will have an impact on the company’s overall numbers anytime soon.

“While details of News+ pricing vary slightly from our initial assumptions - and pricing for updated TV+ services was not provided - we maintain our view that Apple suffers from the law of large numbers, with limited opportunities to offset the longer-term moderation / decline in iPhone sales,” Caso wrote.