Apple disputes allegations that Apple TV+ trial will drive down stock price

Posted:
in AAPL Investors edited September 13
Following Goldman Sachs predictions claiming that Apple TV+ trials would be reported financially in such a manner that investors would complain and bail out of the stock, Apple has said that it will have no impact on results at all.

Tim Cook, discussing Apple TV+
Tim Cook, discussing Apple TV+


The issue, according to Goldman Sachs' Rod Hall, is how investors view profit margins for individual business segments, more than any actual financial impact to the company. In a note to investors on Friday morning, Goldman Sachs said that a one-year free trial to Apple TV+ would impact hardware profit margins because of how Apple has historically accounted for trials, including Apple Music and iCloud subscriptions.

Apple will be offering one-year free trials of Apple TV+ to purchasers of an iPhone, iPad, iPod Touch, Apple TV, or Mac. Hall is apparently concerned that this is a problem, because investors will look more at profit margins just in hardware, and not across the company as a whole.

Hall insists that this accounting issue, and how investors respond to it without any context on where money is being made outside of hardware, will drive Apple stock down by 25% of its present valuation. As a result of the analysis, Hall lowered Goldman Sachs' 12-month Apple stock target price to $165 from its previous $187.

"Effectively, Apple's method of accounting moves revenue from hardware to Services even though customers do not perceive themselves to be paying for TV+," Hall said on Friday morning as a basis for his analysis.

CNBC said in a report on the matter that Hall wasn't accusing Apple of improper accounting. Hall did not address that the money that Apple would make from hardware and software is combined in a total earnings statement, and was concerned about profit margins alone.

Apple does not report sales volumes, so an average selling price isn't able to be determined -- but it does report profit margins. It also isn't clear how Apple is paying for the content now -- costs of production are presumably presently under Services, as that's where the revenue will be reported ultimately.

Apple disagrees with Hall's assessment. The company has issued a statement saying that "we do not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results."

Following Hall's statement, Apple stock fell more than $3.50 per share, driving it beneath the trillion-dollar valuation it held previously. It has recovered about $1.25 of that loss since it made the statement challenging Hall's analysis.
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Comments

  • Reply 1 of 37
    tmaytmay Posts: 3,982member
    The only issue I have is with the free 1 year trials with a device purchase. 

    That's going to draw the ire of a lot of pundits, and regulators, even though Amazon Prime is basically the same thing.

    On the other hand, my purchasing an Apple device once a year is pretty much what I do.
    watto_cobra
  • Reply 2 of 37
    mike1mike1 Posts: 1,947member
    Curious whether I could effectively never pay for the service since my wife and I are on alternating, 2-year upgrade cycles for phones. Assuming, of course the 1-year promo continues. Hmm.
    viclauyycAppleExposedwatto_cobra
  • Reply 3 of 37
    Stock value down by 25%?!! I better get some money ready for more AAPL. 
    viclauyycAppleExposedwatto_cobrajony0
  • Reply 4 of 37
    So much for an attempted manipulation!

    I despise analysts (or better, Anal-cysts )
    AppleExposedtjwolflarryjwwatto_cobrajony0
  • Reply 5 of 37
    tmay said:
    The only issue I have is with the free 1 year trials with a device purchase. 

    That's going to draw the ire of a lot of pundits, and regulators, even though Amazon Prime is basically the same thing.

    On the other hand, my purchasing an Apple device once a year is pretty much what I do.
    So at the moment the 1 year trial is limited to one time per user id or family group. But it will be nice if we could get an extra year with additional purchases. 
    watto_cobra
  • Reply 6 of 37
    mike1 said:
    Curious whether I could effectively never pay for the service since my wife and I are on alternating, 2-year upgrade cycles for phones. Assuming, of course the 1-year promo continues. Hmm.
    Im pretty sure its limited  to one year per customer.  Not one hear per phone per customer. 
    AppleExposedwatto_cobrajony0
  • Reply 7 of 37
    mjtomlinmjtomlin Posts: 2,028member
    tmay said:
    The only issue I have is with the free 1 year trials with a device purchase. 

    That's going to draw the ire of a lot of pundits, and regulators, even though Amazon Prime is basically the same thing.

    On the other hand, my purchasing an Apple device once a year is pretty much what I do.

    The free year of tv+ is a positive for competitors, not a negative. There's no reason for anyone to "worry". 

    mike1 said:
    Curious whether I could effectively never pay for the service since my wife and I are on alternating, 2-year upgrade cycles for phones. Assuming, of course the 1-year promo continues. Hmm.

    It's one-time deal based on your iCloud account. From Apple's website...
    $4.99/month after free trial. One subscription per Family Sharing group. Offer good for 3 months after eligible device activation, starting November 1, 2019. Plan automatically renews until cancelled. Restrictions and other terms apply.


    edited September 13 viclauyycFileMakerFellerwatto_cobra
  • Reply 8 of 37
    What an idiotic statement/analysis from GS...
    DAalsethPickUrPoisonwatto_cobrajony0
  • Reply 9 of 37
    AppleExposedAppleExposed Posts: 1,687unconfirmed, member
    "Following Hall's statement, Apple stock fell more than $3.50 per share, driving it beneath the trillion-dollar valuation it held previously. It has recovered about $1.25 of that loss since it made the statement challenging Hall's analysis."

    Looks like shareholders don't listen to Apple but the Anal-cysts instead. lol
    watto_cobrajony0
  • Reply 10 of 37
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    edited September 13 watto_cobrajony0
  • Reply 11 of 37
    slurpyslurpy Posts: 5,193member
    These people are short-sighted as fuck.
    AppleExposedStrangeDayswatto_cobra
  • Reply 12 of 37
    bradgonemadbradgonemad Posts: 1unconfirmed, member
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    Your math doesn't account for the cost of bandwidth to deliver the streaming content, servers to store the content, maintenance, employees, etc etc. They don't get to keep every penny. This also goes for phones that they have to pay China to manufacturer, freight costs yada yada.

    You sound like those people that go to the casino every week and lose a bunch of money but don't tell anyone then brag about the few times they actually win something. 
  • Reply 13 of 37
    AppleExposedAppleExposed Posts: 1,687unconfirmed, member
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    Your math doesn't account for the cost of bandwidth to deliver the streaming content, servers to store the content, maintenance, employees, etc etc. They don't get to keep every penny. This also goes for phones that they have to pay China to manufacturer, freight costs yada yada.

    You sound like those people that go to the casino every week and lose a bunch of money but don't tell anyone then brag about the few times they actually win something. 

    He mentioned it. Apple makes a big profit on every product they sell. Judging by your post count your ignorance doesn't surprise me.

    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.

    And that's not even counting PAID subscribers who haven't bought a new product.

    Everyone is assuming 0 subscribers will join outside of the free year. That's ridiculous. Idiots are also conveniently leaving out new iPod/iPad/Apple TV/Mac buyers.

    Apple could easily reach 100 million subs in year 1. More as the content/value increases.
    StrangeDayswatto_cobra
  • Reply 14 of 37
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    Your math doesn't account for the cost of bandwidth to deliver the streaming content, servers to store the content, maintenance, employees, etc etc. They don't get to keep every penny. This also goes for phones that they have to pay China to manufacturer, freight costs yada yada.

    You sound like those people that go to the casino every week and lose a bunch of money but don't tell anyone then brag about the few times they actually win something. 
    Huh. I'd have thought that the 60% that WASN'T profit margin accounted for the costs. And he did say quick-and-dirty assumptions. You were far too ready with the slick put-down, Brad. Reminds me of Julian Castro's huge faux pas last night when he attacked Joe Biden for his faulty memory - and it turned out that it was Mr. Castro's memory that was faulty....
    AppleExposedmatrix077llamawatto_cobra
  • Reply 15 of 37
    jungmarkjungmark Posts: 6,719member
    Analyst manipulation. Can he bet his job on a 25% drop? 
    watto_cobra
  • Reply 16 of 37
    elijahgelijahg Posts: 1,014member
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    Your math doesn't account for the cost of bandwidth to deliver the streaming content, servers to store the content, maintenance, employees, etc etc. They don't get to keep every penny. This also goes for phones that they have to pay China to manufacturer, freight costs yada yada.

    You sound like those people that go to the casino every week and lose a bunch of money but don't tell anyone then brag about the few times they actually win something. 
    The bandwidth costs are essentially zero. I have no idea what makes Goldman think this will suppress the share price so much. Their explanation makes some sense, but maybe a few dollars share value less, not $50+.
    AppleExposedwatto_cobra
  • Reply 17 of 37
    Please do NOT click through to the article. Your click is exactly what this scumbag was looking for....
    lkruppwatto_cobra
  • Reply 18 of 37
    I find myself wondering if I can schedule my Apple purchases in an annual manner to get that free $60 value. I'm not sure if this sort of scheduling means I will be increasing my purchases or delaying them. It could go either way. I guess what matters is whether the free year of Apple TV starts immediately or can it be delayed for a while.
    watto_cobra
  • Reply 19 of 37
    Such a piece of BS analysis from GS. Apple will sell, say conservatively, 240M devices in the coming year. Assuming 10% of them decide to continue with @TV+, that's 24M paying $60/year from Year 2 and on. If we assume -- again, conservatively -- a 40% profit margin on services, that's $576M in profit every year for a long time. At a PE ratio of 18x (about where it currently is), that's a ~$10B gain in value.

    You can quarrel with my specific, quick-and-dirty assumptions and pick different ones  but under a wide range of such assumptions, the point is that there is no loss of value, to be sure.

    Sheesh. Stupid analysts.
    Yes, big pix I agree. But I conservatively would estimate (instead of 240 million devices) about 100 million households. My guess is 20 percent won't unsubscribe from a $5/ month cost, especially with new content and continuing series. 
    watto_cobra
  • Reply 20 of 37
    gatorguygatorguy Posts: 21,289member
    Does Apple typically reply to analysts, and particularly so quickly? 
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