By Sam Boughedda
Bernstein analyst Toni Sacconaghi believes that Apple's (NASDAQ:AAPL) streaming service will likely never be material financially for Apple.
In a note to clients Monday, Sacconaghi explained that to date, Apple's streaming service has differed from its peers, with limited content which is mainly original but consistent with Apple's brand — high quality. In addition, it is inexpensively priced at $5/month or $50 per year.
"Given Apple's essentially non-existent disclosures around Apple TV+, gaining conviction behind the total number of subscribers and content spending figures is tough. Having said that, we considered third party estimates and our own bottom up analysis and conclude that Apple may have 20 - 40M paying subscribers, annual revenues of $1-$2B, and annual content spending of ~$3B+," wrote the analyst. "While free trials and accounting considerations cloud the financial impact of Apple TV+ to Service's profitability, we believe that a 'true' P&L (assuming no free trials) would suggest an operating income loss of ~$1B in 2021 (~1% of total company), and potentially ~$2B on a cash basis."
As a result, Bernstein said, "Apple TV+ will likely never be material financially for Apple in and of itself, but it is an additional subscription-based revenue stream that can help its Services business grow, and is a powerful bundling vehicle - given the marginal cost of a free subscription is essentially zero."
The analyst maintained a Market Perform rating and $170 price target on Apple.