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Apple Takes a Bigger Bite out of Services, Hoping to Avoid the Worms

Mar 26, 2019

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  • Apple Inc. (AAPL) announced its expansion deeper into the entertainment, financial services, news, and video games industries with the unveiling of a suite of new services in a 2-hour presentation by CEO Tim Cook. Apple’s new services, Apple TV+, Apple Card, Apple News+, and Apple Arcade, represents a shift by the global tech giant from a product-heavy business model to a more balanced mix of product and service business.
     
  • Despite the announced transition into services revenue, which many believe to be more attractive and predictable than product revenue, Apple’s stock price reacted negatively and fell 1.21% on Monday to USD$188.74/share.
     
  • As Apple attempts to move away from its reliance on softening iPhone sales, the company will attempt to capitalize on its massive user database and substantial customer loyalty with 4 new services to drive the company’s services revenue growth. Technalysis Research President Bob O’Donnell explained, “A lot of the markets they’re currently in are peaking, so to maintain growth and satisfy investors, they have to extend their reach.”  
     
  • Apple TV+ is an expansion of Apple’s pre-existing TV application and will feature original video content alongside popular established channels such as HBO and Showtime. Prominent stars such as Steven Spielberg, Oprah Winfrey, and Jennifer Aniston joined Apple CEO Tim Cook in the announcement yesterday, as they will in some way be a part of Apple TV+’s original content. Apple did not disclose pricing details for this service and will wait until the Fall to do so.
     
  • Apple TV+ puts Apple in direct competition with established streaming companies like Netflix (NFLX) and budding streaming companies like Disney (DIS).
     
  • Apple Card is a new credit card launched by Apple in partnership with Goldman Sachs (GS) and Mastercard (MA) that will feature 0 fees, both annual and late, in addition to low interest rates. Apple Card will also use machine-learning to analyze and organize users’ spending behavior and educate cardholders.
     
  • Apple Card represents a major expansion of the tech giant’s original venture into the financial services industry, which began in 2014 with the launch of Apple Pay.
     
  • Apple News+ is a news subscription service that will cost USD$9.99/month and grant users access to over 300 magazine and newspaper publications, including major names such as Wall Street Journal, GQ, and Sports Illustrated. 
     
  • Apple will split revenue from Apple News+ 50/50 with publishers, according to the Wall Street Journal.
     
  • Apple Arcade is a gaming subscription service that will include access to over 100 games on the Apple App Store for an unspecified monthly fee. Every game included in the Apple Arcade service will not have in-app microtransactions and all advertisements will be removed.
     
  • Apple’s announcement of Apple Arcade comes amidst a transition in the gaming industry to subscription revenue models and streaming capabilities. Last week, Alphabet’s (GOOG.L) Google announced Stadia, a game streaming platform many people speculate to be based on a subscription model. Microsoft’s (MSFT) Xbox, meanwhile, has been heavily pushing Xbox Game Pass, a subscription-based service that includes a bundle of Xbox games.

 

  • Apple is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.

 

 

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Global Top Stock IdeasTOP LONG & TOP SHORT STOCK IDEAS FOR GLOBAL MARKETSMONTHLY TOP IDEAS FROM OUR MULTI-FACTOR QUANTITATIVE MODELS