Street Talk: Apple Inc.’s (AAPL) $1B Content Budget, Facebook Inc’s (FB) In-Stream Video Ads, Amazon.com, Inc.’s (AMZN) $16B Private Debt


 

Apple to Deploy $1 Billion Budget for Video Content

Apple Inc. (NASDAQ:AAPL) will invest approximately $1 billion in acquiring and producing original TV shows over the next year, according to The Wall Street Journal. The iPhone maker could acquire and produce up to 10 shows, which will be largely left in the hands of new Apple hires Jamie Erlicht and Zack Van Amburg. Erlicht and Van Amburg are former presidents from Sony Pictures Television that moved to Apple in June to oversee video content strategy and production.

Cantor analyst Kip Paulson commented, “This budget represents about ½ of HBO’s ~$2B/year content budget, and is significantly less than Netflix’ $8+B of cash spend and Amazon’s $4+B, by our estimate. That said, this is a significant commitment for a year one content budget, and Apple clearly has a large wallet to draw from, so this amount could move up significantly over time. Given this news and Disney’s direct-to-consumer streaming announcement last week (coming 2019), competition will be picking up. However, we think NFLX and AMZN have a significant first mover advantage and unmatched value proposition (~$19/mo, vs. $100+ for cable), making them must-have cornerstones for digital OTT entertainment plans, as consumers try to reconstruct their own bundles outside of an outdated set-top box/authentication eco-system.”

Facebook Rolls Out In-Stream Video Ads

Facebook Inc (NASDAQ:FB) is giving advertisers more choice in terms of what kind of ads they run and where. The social media giant is now allowing video advertisers to run in-stream ads, meaning the spots will run as an interruptive experience akin to a commercial break. In the past, advertisers that wanted to purchase in-stream placements delivered into ad breaks were required to run them in the news feed.

Cantor’s Kip Paulson noted, “This news comes a week after announcing Watch, a redesigned video tab, so FB is clearly setting up the monetization framework/infrastructure for longer form content. Impressively, more than 70% of in-stream video ads up to 15 seconds in length were watched to completion, according to the article. FB is rapidly evolving into a video distribution platform and an even-more important partner for brands, which should help offset ad load constraints in 2H17, in our view.”

Paulson rates Facebook shares an Overweight with price target of $190.00, which implies an upside of 13% from current levels. (To watch Paulson’s track record, click here)

Out of the 46 analysts polled in the past 12 months, 42 rate Facebook stock a Buy, 2 rate the stock a Hold and 2 recommend Sell. With a return potential of 11%, the stock’s consensus target price stands at $185.72.

Amazon Completes $16 Billion Bond Deal 

Amazon.com, Inc. (NASDAQ:AMZN) has sold $16 billion in senior unsecured notes in a private offering. The proceeds from the debt offering will help fund its planned $13.7 billion takeover of the supermarket chain Whole Foods in the US as well as pay off 1.2 percent notes due this year.

Cantor analyst Kip Paulson stated,”The offering is the 4th largest high-grade debt offering this year, and will be broken into seven parts, ranging from 3-year to 40-year notes. Notably, the 10- year tranche is priced only 90bps over Treasuries, and the 40-year is 145bps over Treasuries. Moody’s assigned a Baa1 rating to the offering and changed the company’s rating outlook to positive (from stable). Given that Amazon is able to borrow at ~3-4%/yr (while growing topline 26% Y/Y) and only has a debt to total cap ratio of ~5%, we can’t think of a reason not to tap the debt markets, particularly given the low interest rate environment.”

Paulson rates Amazon shares an Overweight with price target of $1,150, which implies an upside of 20% from current levels.

 

 

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