Apple's starry TV launch fails to prevent analyst disappointment

Apple’s long-awaited services update included a television streaming service, a virtual games arcade, a 'Spotify for news' and a titanium credit card but failed to wow investors and analysts.

The US tech giant is looking to end its reliance on devices as it refocuses on subscription-based revenues, led by the new television streaming service. Apple hopes to take on dominant players such as Netflix and Amazon when it launches Apple TV+, and on Monday the group updated the market on its Services arm.

Wall Street largely approves of Apple's long-term, strategy, but analysts were left disappointed by Monday's high-profile event, which featured appearances from Steven Spielberg and Oprah Winfrey.

APPLE TV+ STREAMING

Goldman Sachs, which has retained its ‘neutral’ rating on Apple, said it had been expecting more, noting that the information released “materially different that we had anticipated”.

The bank had hoped the Apple TV+ streaming service would be launched. Instead, it was only previewed and with no pricing availability.

Analyst Damindu Jayaweera at Peel Hunt also applauded Apple’s move towards subscription services, although he added: “Apple is trying to differentiate from the myriad of competitors in the content space by pitching itself as the private first provider that offers a safe space away from advertisers. We are unsure how great a differentiator this is against the content qualify of the likes of Netflix and HBO.

“While there is a clear strategy to centralise content consumption onto the Apple TV platform, we think not everyone will chose to pay for Apple TV +’s original content on top of a Netflix subscription.”

Michael Hewson, chief market analyst at CMC Markets, said: “It was a little anti-climactic. Despite a star-studded line up, as a Netflix killer it was a little underwhelming. However, from little acorns do big oak trees grow and there is a chance it could grow in popularity over time.

“There was little indication of any unique selling point that would set it apart from Netflix or Amazon from that matter, and given the growing popularity of so-called cord cutting when it comes to cable, the sheer volume of choice will still run into the inevitable road block of customer limitations.

“Both Netflix and Amazon shares finished the day higher, suggesting that nether one of them has much to worry about at the moment.” Apple ended the session 1% lower $188.74, although the stock - which has fallen heavily since a shock profit warning in January - was trading 1% higher in pre-market trading on Tuesday.

While there were still doubts and unanswered questions, Neil Wilson, chief market analyst at Markets.com, said that it was a "big step in the pivot towards making Apple more of a services business".

He added: “You could call this an ecosystem play, with new services designed to strengthen the bonds between consumers and the brand. Service revenues have soared lately and are more sustainable than relying on hardware sales – building out this ecosystem is crucial to the brand being able to continue to deliver this growth.”

APPLE'S SPOTIFY FOR NEWS

Apple also announced a "Spotify for news" product called Apple News Plus that includes the likes of the Wall Street Journal and content from Hearst, Conde Nast, online specialists like Vox and around 300 others, though some big publications such as The New York Times and Washington Post have so far opted out.

The service will cost a monthly fee of $9.99 and will look to differentiate from social media and online publishers by pushing its privacy credentials, saying "we don't allow advertisers to track you".

Peel Hunt's Jayaweera observed that curating the news experience will be done by pushing the decision engine technology onto the user's device, "thereby negating the necessity for gathering customer data as part of the curation process...an interesting development, that touches both the 'edge computing' paradigm, which we think will become an important investment theme, and also the 'privacy first' as an emergent competitive edge".

CARD, GAMES ARCADE BUT NO BUNDLE

The Apple Card credit card offer was announced for availability in the US this summer, with an associated app that helps users track their spending.

The card is an extension of Apple Pay and will be a Mastercard issued by Goldman Sachs, with customers receiving a physical card made of brushed titanium metal, with the owner's name etched into it.

On the launch into financial services, Goldman's equity analysts noted that Apple Card had "attractive" spending tracking features. "But our calculations again imply little short-term earnings impact for Apple".

Apple also previewed its Arcade gaming subscription service, which will be available from the autumn.

The games platform will be based on its App Store and will be exclusive to Apple’s ecosystem, on the iPhone, iPad, Mac and Apple TV, with cross-platform play between all devices.

Lamenting that there was no pricing information on Arcade and also noting that Apple had offered "no services bundle to compel users to sign up now though this is still a possibility for the actual launch this fall", Goldman concluded: “Though all of these services are interesting from a platform churn point of view, none seem likely on our calculations to materially impact EPS in the short term.”

In contrast with Google's recent Stadia launch, the Arcade will not be a streamed service, but a subscription to more than 100 games, downloadable to each device, with offline play available.

The demonstrations displayed by Apple implied some games will be able to take advantage of Apple’s high-end devices’ processing capacity, but Liberum analyst Alexandre Schmidt's view was that achieving truly triple-A standards "would be challenging on an offline service".

"Apple has mentioned the list of games will be continuously curated and expanded, which, in our view, increases discoverability in mobile’s notoriously busy environment."

AFFECTED SUPPLIERS

Schmidt noted that there were implications for UK-listed games makers, with Sumo Group featuring at the presentation and that the Arcade could also be "particularly beneficial" for Team17, whose games he sees as a good fit and if the company goes on to sign partnerships with Apple "we could see a significant positive boost to the stock".

On a broader industry view, Schmidt said the announcements from Apple, Google and expected others "means, on the longer term, they are likely to invest in creating their own branded content (as we have seen with Netflix and Amazon) which would also be potentially positive for [Codemasters], [Frontier Developments] and Sumo".

Peel Hunt's Jayaweera thought what was announced "is broadly positive" for online payments specialist Boku given the potential for an enlarged pool of paid content consumers.

As an existing supplier to Apple's content services competitors like Spotify and Netflix, Boku, like any payment technology provider, "will benefit regardless of who the ultimate winners are" and Boku itself might also benefit if it can provide its Identity product to Apple Card.