The field of video services is becoming the new battleground for technology giants, especially the FAANG stock companies.
Leading investment firm Morgan Stanley (MS) believes that Apple Inc.'s (AAPL) video streaming service has the potential to emerge as a multibillion-dollar business, according to CNBC. Reiterating its overweight rating on Apple stock, Morgan Stanley said “investors are underestimating the strength of its services business.”
Apple's Video to Bolster Services Revenues
The standalone video service offered by the Cupertino, California-based smartphone maker can generate sales of $4.4 billion in six years from a base estimated to be worth $500 million in 2019, according to Katy Huberty, an analyst at Morgan Stanley.
"We believe that Apple Video will become a reality sooner than investors think ... Optionality around Apple Video helps emphasize the increasing contribution to growth from Services," Huberty mentioned in a note to clients Wednesday entitled "The Emerging Power of Apple Services, Part 3: Video a New Growth Driver in 2019." (See also, Apple Could Launch a Netflix Competitor in 2018: Analyst.)
Raising the price target for the stock from $232 per share to $245 per share, Huberty opines that Apple's large and loyal customer base, supported by its convenient registration and payment process, has the potential to “drive users to its video platform, even with a less complete content portfolio vs. Netflix." With 1.3 billion active devices used across the globe, Apple is well positioned to capitalize big on its various streams of services, which include video, augmented reality (AR), health, autos and home. (See also, Apple Building Health-Focused Custom Processor.)
Along with rapid growth from the services segment, the leading electronic device maker is also expected to benefit from margin expansion, the recent tax overhaul and cash repatriation to the U.S., all of which will help bump up the company's share price.
Last month, Apple became the first publicly traded company to achieve the coveted feat of a $1 trillion market capitalization. About a week ago, famed investment guru Warren Buffett added more Apple shares to his portfolio, claiming that the iPhone is “enormously underpriced.” Buffett’s investment in Apple, made through his investment firm Berkshire Hathaway Inc. (BRK.A), now exceeds $50 billion and makes him the third-largest shareholder of the company. (For more, see Buffett Buys More Apple, Calls iPhone 'Enormously Underpriced.)
However, Huberty’s opinion contrasts with that of noted technology investor Paul Meeks. Last week, Meeks said that though Apple’s services appear promising, the company has too much dependence on the iPhone which has witnessed declining sales, a fact that may impact the company's services-based revenue, among others. (For more, see 'Apple Most Worrisome Among FAANGs': Paul Meeks.)
As the FAANG stocks' valuations rise, the technology companies are invading each other’s territories to find new revenue sources. Apple’s potential gains in video service may impact Netflix Inc. (NFLX) and Amazon.com Inc.’s (AMZN) Prime Video services. FAANG is an acronym for the market's five most popular and best-performing tech stocks, namely Facebook, Apple, Amazon, Netflix and Alphabet’s Google.
Apple shares were trading at a price of $227.75 during Thursday morning pre-market hours.