Morgan Stanley sees Apple's video business rivaling Netflix by 2025, ups target to $245

in AAPL Investors edited September 2020
Apple is augmenting its booming services business with its fledgling content plans -- and Katy Huberty from Morgan Stanley thinks that the efforts will pay off in a big way.

Jennifer Aniston and Reese Witherspoon, stars of one of Apple's upcoming shows
Jennifer Aniston and Reese Witherspoon, stars of one of Apple's upcoming shows

Throughout the last year, Apple has made frequent announcements about new TV shows that it plans to launch, many of which involve partnerships with major, A-list talent. But Apple has provided very few clues about what business model it may use to distribute those shows.

A new analyst note from Morgan Stanley, obtained by AppleInsider, looks at some possible models Apple could use for its content launch- and sees Apple's video push as a potentially significant growth driver for the company.

Titled Apple, Inc.: The Emerging Power of Apple Services, Part 3: Video a New Growth Driver in 2019, and authored by Morgan Stanley's Katy Huberty, Erik W Woodring, Elizabeth Elliott, and Kieran Kenny, the note also raises Morgan's price target for Apple to $245, from $232. Apple closed at $228.36 on Tuesday.

Morgan Stanley believes that Apple could offer its content on a standalone streaming service at a lower price point than competitors such as Netflix, and make Apple a huge amount of money,.

"We forecast that an Apple Video streaming service with high quality but limited breadth could be priced at the low end vs. competitors, or $7.99/month, and reach over 50M paid subscribers by 2025, compared to 124M at Netflix (current paid streaming subs) and Apple's >650M unit iPhone installed base," the authors write. "This would imply that stand-alone Apple Video can grow from a ~$500M business in CY19 to a $4.4B business in just six years."

"Combined with Apple's stand-alone streaming music business, which we project grows into an $18B revenue generator over the same time period (from roughly $4B at the end of CY18), streaming video and music would become a $22B business by 2025, roughly equal to the size of Netflix and Spotify combined today but just 8% of Apple's CY18 projected revenue," said Huberty.

Another option would be for Apple, as has been rumored, to combine its video offerings with subscriptions to Apple Music and/or Apple News for a single subscription price.

"We believe a bundling of Apple's video content with Apple Music and the Texture news and magazine subscription service into a $12.99/month unlimited Apple Media' service (in-line with the current cost of a Hulu and Spotify bundle) would make the most sense for 5 primary reasons," Morgan Stanley writes. "1) it would allow for differentiation vs. established peers, 2) it would reduce dependency on big video hits early on, 3) it could be perceived as a "higher value" service by consumers, 4) users would only need to navigate one integrated payments platform for all of their video, music, and news services, and 5) it could drive greater user engagement, subsequently improving overall customer stickiness."

As a result, the authors see the video offerings adding a substantial amount of revenue to Apple's already robust Services category, which broke another record for revenue in Q3 with $95 billion.

"If we incorporate the assumptions from our Apple Media bundle scenario while keeping all other Apple Services forecasts unchanged, then we'd expect Apple Services revenue to grow at a 21% CAGR through CY25, ultimately reaching $143B by 2025, up from current forecasts of a 19% revenue CAGR and $124B in revenue by 2025 (1). In this scenario, Apple Media, along with Software and Other and the App Store would each contribute about of Apple's total Services revenue growth through 2025."

The authors also conclude that Apple is unlikely to acquire an established movie studio, but is rather "more focused on building these efforts in-house."

"We believe that Apple Video will become a reality sooner than investors think, and use this report as a way to frame the two most likely methods for video content distribution and potential impact video could have on Apple's Services business. Optionality around Apple Video helps emphasize the increasing contribution to growth from Services," the authors wrote.


  • Reply 1 of 7
    tmaytmay Posts: 5,713member
    Interestingly, the EU wants more content developed within that marketplace by all of the global streaming companies, not necessarily an advantage for Apple, but certainly an opening for any deep pockets streaming provider to find and develop new sources of content. Many of the series that I favor on Netflix are foreign, English language or subtitled, that have much more of an indie feel than the typical big budget network or premium cable series do. Horses for courses, but more choices in content is welcome.
  • Reply 2 of 7
    When has Apple undercut competitors on price? I could see Apple doing some sort of bundling but I don’t see them pricing it in a way that would concern regulators.
  • Reply 3 of 7
    SoliSoli Posts: 10,033member
    Apple has a long history of coming into a market and dominating but to gauge 7 years out what a content creation business that hasn't really launched will do seems overreaching.
  • Reply 4 of 7
    nunzynunzy Posts: 662member
    These analysts are ALWAYS wrong!
  • Reply 5 of 7
    nunzy said:
    These analysts are ALWAYS wrong!

    If, as you say, analysts are always wrong... Then everybody would be billionaires by just doing the opposite of what any analyst recommends.

    But in reality saying "analysts are ALWAYS wrong!" is an untruth. The fact is that some analysts have better records of providing accurate analysis than others. Analysts prognosticate based on available data, and in general, they are neither right all of the time nor are they wrong all of the time.

  • Reply 6 of 7
    SoliSoli Posts: 10,033member
    jurassic said:
    nunzy said:
    These analysts are ALWAYS wrong!

    If, as you say, analysts are always wrong... Then everybody would be billionaires by just doing the opposite of what any analyst recommends.

    I'd argue that it would only be accurate in a binary system. Morgan Stanley saying Apple will rival Netflix by 2025 might pan out but how exactly do you accurately measure that? And what if they miss their stated deadline by a month does one say it's in-accurate or do you allow a margin of error for analysts?

    What if Apple doesn't make it to $245 within a year (which I think is what those projections of stock prices are suppose to represent)? Does it have to be $245 exactly to eb accurate? Can it be $300 because that's $245 + $55 or is that outside the margin of error for an analyst? I'd say so. And how about if it's $244.47 in a year? That can't round up to $245 but I'd say that would be within an incredibly small margin of error that it's improbable they will be that accurate.

    And, of course, they'll keep their changing their projections as the company grows. It'll be interesting to see what Apple really is trading at (after potential adjustments) come 2025.
  • Reply 7 of 7
    "sooner than investors think:" "by 2025"
    LOL WTF?
    Awesome. So I should be able to get the service while vacationing in my summer house on Mars.

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