Largely driven by hopes and dreams for Apple’s (NASDAQ:AAPL) upcoming streaming offering, Apple stock has rallied in recent weeks. In fact, so far in 2019, Apple stock is up over 24%.
But these hopes seem to be misplaced. For a variety of reasons, ranging from a lack of access to many consumers’ TVs to a lack of first-mover advantage to a lack of demand for what AAPL reportedly plans to offer, Apple streaming almost definitely won’t move the needle for Apple stock. Therefore, I believe that investors should sell Apple stock ahead of the event, which is scheduled for 1 p.m. ET today.
[Editor’s note: This story was originally published March 22 but has been republished ahead of Apple’s event today.]
Here are the top five reasons (in no particular order) why the streaming product is very unlikely to move the needle for Apple stock.
Apple Stocks Has Tons of Competition
I’ve written about the tremendous competition in the sector streaming before in reference to Netflix (NASDAQ:NFLX) stock, but it’s worth repeating here since Apple is about to enter the same space.
In a column published by InvestorPlace on Feb. 8, I wrote:
“The price hike isn’t going to help Netflix’s battle against its emerging competitors in the streaming space. Disney’s (NYSE:DIS) ESPN+, which recently announced that it has 2 million subscribers, Dish’s (NASDAQ:DISH) Sling TV, which had 2.4 million subscribers as of November 2018, Hulu, with 25 million subscribers, YouTubeTV, Roku (NASDAQ:ROKU), and Plex are among the other services competing for streaming TV dollars.”
Additionally, later this year, DIS will introduce its own entertainment streaming service, Disney+, and only in the last week, I’ve discovered a new, free streaming service, Pluto TV, which looks pretty robust.
Also, first-mover advantage, i.e. the advantage that the first major product in a category has, is often tremendous. Think of Netflix in video streaming, Amazon (NASDAQ:AMZN) in e-commerce, and the iPod from Apple. All of the efforts to introduce competition to those initial products did not unseat them.
In video streaming, AAPL will not even be the second, third, or even fourth mover.
Lack of Access to Most Consumers’ TVs
AAPL did make a deal with Samsung to offer the Apple streaming app on all Samsung TVs. Still, it turns out Samsung TVs have a market share of only 33% in the U.S. smart TV market.
Meanwhile, anyone with an Apple device will reportedly get Apple streaming for free, so Apple won’t get any subscription revenue from its own massive installed base. That presumably includes the owners of Apple TV devices, which had a whopping 15% share of the U.S. market as of the middle of last year.
Had AAPL followed my advice and bought Roku (NASDAQ:ROKU) in addition to making the deal with Samsung, it would have had access to many more consumers. It also might have been able to make a tremendous amount of money from selling ads.
Roku has estimated that a quarter of all TVs in the U.S. had Roku pre-installed, and Roku apparently does not come pre-installed on Samsung TVs. Plus, in August, 27% of Americans who used a device other than a smart TV to stream television utilized Roku, a survey by research firm William Blair found.
Apple Streaming Will Not Be Lucrative Enough
Due to the popularity and high prices of Apple’s iPhone, it’s not easy to meaningfully improve Apple’s financial results with other items. Consequently, it’s very difficult for Tim Cook and his staff to move the needle for Apple stock.
It looks like even if Apple streaming is wildly successful, it won’t meaningfully impact Apple’s financial results for some time.
Specifically, last month Jefferies analyst Tim O’Shea calculated that, even if 250 million people sign up for the streaming service, “it still would account for only about 5% of the company’s revenue that year — and wouldn’t make up for its declining smartphone sales,” Boy Genius quoted Business Insider as reporting.
As a result of Netflix’s low prices and the ever-increasing competition, AAPL can’t charge high prices for its service. O’Shea estimated that it would only charge $15 per month for it. If the report about Apple streaming being free for owners of the company’s devices is correct, it will really limit the products ability to move the needle for Apple stock.
The Channel Bundling Component Won’t Be Very Popular
It appears that AAPL hopes that it can make Apple streaming lucrative by using it to sell subscriptions to bundled, paid channels. AAPL will reportedly keep 30% of the revenue from these deals. And, importantly, unlike Amazon, Apple will be able to sell the bundled channels for less than they would cost if consumers had bought them individually.
But there are a number of flaws with this plan. Many people already have plenty of content from Netflix and Amazon. Many more have Hulu or Sling. And now Apple is presumably going to offer free content to the owners of Apple devices.
First of all, how much content do people need? Secondly, the whole point of cord cutting is to save money. If consumers are paying for Netflix and, say, Hulu, and then add one of Apple bundles and Disney+ for their kids, they’re not going to save any money by cutting the cord. For the same amount of money, they could probably have an expensive cable package with TiVo.
And that leads me to my next point; many of the people who have enough money to buy Apple’s bundles probably already have old-fashioned things called premium cable channels and TiVo.
About the only audience that Apple’s bundles could have tremendous appeal for are wealthy people living abroad who love American content. But that’s a limited audience, and Netflix and Amazon are already filling that niche.
A Content Edge May Not Materialize and the Tech Likely Won’t Wow
Apple is apparently betting that signing big names, such as Oprah and Steve Carell, to make content for Apple streaming will put it heads and shoulders above the competition.
But history shows that big names don’t always, or even usually, create big hits or even beat the competition. For instance, was Oprah’s OWN cable channel a tremendous hit? Can you even name any of Carrell’s projects since he left The Office? Amazon thought it could guarantee hit films by hiring Woody Allen to write them. That didn’t work out too well for Jeff Bezos and crew.
And even if the content isn’t vastly superior, maybe Apple streaming could beat the tremendous competition in the sector if its product had some huge technical edge. But technical innovation has not been a hallmark of AAPL under Cook. Moreover, a large number of reports about the project have emerged, and none of them seems to discuss technology. Therefore, that scenario seems unlikely to play out.
For all of the reasons outlined above, Apple streaming does not seem well-positioned to be the savior of Apple stock. Moreover, Apple’s crown jewel, the iPhone, is still in trouble, and AAPL is facing threats on other fronts, such as the possibility that content creators will stop paying the App Store’s “Apple tax.” Therefore, I recommend selling Apple stock now.
As of this writing, the author did not own stock in any of the aforementioned companies.