Apple’s (AAPL) Original Content Could Be a Meaningful Revenue Driver, Says Top Analyst


With Oprah Winfrey inking a major multi-year deal with Apple (NASDAQ:AAPL) to create original programs, RBC Capital’s top analyst Amit Daryanani believes the tech giant will further differentiate its services offering by enhancing original media content and increase the stickiness of its install base.

Daryanani wrote, “We estimate AAPL will spend $~1B+ in FY18 on production/ content that will be released in FY19 and beyond. Assuming original TV content has the potential to accelerate Music paid subscriber growth to 100M+ users in the next three years, we think combination of Music/ original content could represent a ~$10-12B annual run-rate business contributing $0.25-0.75 to EPS. More importantly, this would increase the stickiness of the iOS ecosystem.”

Furthermore, “We estimate AAPL has ~40-42M paid Apple Music subscribers, and AAPL is well positioned to increase the number of paid subscriber to 100M+ in next three years, as: (1) AAPL has recently increased the number of paid subscriber by ~2M/month; (2) Music +Video bundle package could accelerate subscriber growth; (3) Consensus estimates see SPOT to grow its premium subscriber to 122M in 19E from 48M in 16, implying CAGR of 36%. Assuming AAPL maintains Apple Music pricing, we see combination of Music/original content could represent a ~$10-12B annual run-rate business contributing $0.25-0.75 to EPS. Additionally, we see upside to the subscription pricing, as we note price for Spotify and Hulu bundle is $12.99.”

Net net, the analyst thinks Apple original content + Music could be a sizable revenue/EPS driver over next few years in addition to bolstering the company’s recurring revenue profile.

As such, Daryanani reiterates an Outperform rating on Apple shares, with a price target of $210, which represents a potential upside of 16% from where the stock is currently trading.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Amit Daryanani has a yearly average return of 26.6% and a 84% success rate. Daryanani has a 29.6% average return when recommending AAPL, and is ranked #18 out of 4830 analysts.

 

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