Apple (AAPL) investors are looking forward to the tech giant’s big event on March 25, with hopes that new ventures like the upcoming streaming video service will help to turn things around. Many believe Apple can drive synergies between its leading position in smartphones and the rapid transition of video consumption to mobile to drive stronger services growth. One of those believers is Wedbush analyst Daniel Ives.
Ives noted, “We (and many others) are finally getting what we hoped for and predicted as the company is set to announce its inaugural streaming video content service that will be a linchpin in further expanding its services wings into areas such as video content and potentially gaming over the next decade.”
If we look at the bigger picture, the services business, according to Ives, “remains the wild card in driving the valuation higher for Apple” as he estimates the valuation of the services franchise for the company is worth roughly $400 billion on a standalone basis with this highly profitable segment poised to exceed $50 billion in revenues by FY20 and doubling from FY16 levels.
However, the analyst points out that AAPL “is definitely playing from behind the eight ball in this content arms race with Netflix, Amazon, Disney, Hulu, and AT&T/Time Warner all going after this next consumer frontier investing significantly more dollars ($20 billion combined and counting per annum) on content. While acquisitions have not been in Apple’s core DNA, the clock has struck midnight for Cupertino in our opinion and building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A around content over the coming year to “double down” and drive the services flywheel especially with its new video subscription service set to be rolled out.”
“If Apple executes with minimal speed bumps and aggressively acquires content given the company’s massive installed base and unmatched brand loyalty we believe reaching 100 million subs in the medium term (3 to 5 years) is a realistic goal that could translate into a $7 billion to $10 billion annual revenue stream over time for Apple and further cement its installed base and halo effect,” the analyst addedadded
Ives reiterates an Outperform rating on AAPL stock, with a price target of $200, which implies an upside of 11% from current levels. (To watch Ives’ track record, click here)
All in all, the investor community is mixed on the iPhone maker. TipRanks analysis of 36 analyst ratings shows a Moderate Buy consensus, with 19 recommending Buy and 17 preferring to stay sidelined with a Hold rating. The $178.37 average price target further shows the mixed thoughts on AAPL, as it represents a less-than 2% drop from where the stock is currently trading. (Get TipRanks’ free stock analysis report on AAPL)