Apple and bearish analyst spar over free Apple TV+ trial

Apple and bearish analyst spar over free Apple TV+ trial
Apple and Wall Street have enjoyed a pretty good friendship over the years. The company went public on December 12th, 1980 and the initial offering created more millionaires than any IPO in U.S. history. The company has always been covered by a large number of brokerage house analysts and Apple normally has kept its distance from forecasts and estimates produced by them. But Apple is now embroiled in a fight with one of the Street's giant investment houses, Goldman Sachs.

According to Reuters, the skirmish started after Goldman's Rod Hall took a shot at the accounting methods that Apple is going to use for its Apple TV+ video streaming service. Because Apple is giving a free year of Apple TV+ to those purchasing a new 2019 iPhone model, the company will account for the trial as a discounted service bundled together with the purchase of hardware. According to Hall, this will lead to a drop in iPhone gross profit margins and profits since the cost of the trial will be subtracted from iPhone revenue; this revenue will be added to the services unit, which TV+ belongs to. Hall says that the accounting move, which is neither improper or illegal, will cut fiscal first quarter 2020 earnings per share by 16%. Since this quarter includes the three months from October through December, it usually is the biggest quarter of the year for Apple in terms of revenue and profits.

Goldman analyst Hall says Apple's accounting for the free TV+ trial will result in a "material negative impact" on earnings which Apple denies


The analyst says that the accounting choice made by Apple will increase the revenue of its services unit, as we just pointed out. He said, "Effectively, Apple’s method of accounting moves revenue from hardware to services even though customers do not perceive themselves to be paying for TV+." This is also important for Apple because it has had a long-standing goal of doubling revenue in the services unit from the $25 billion it generated in 2016 to $50 billion next year. During its fiscal second quarter, the most recently released by Apple, the services unit brought in a record $11.5 billion. The addition of Apple Arcade and TV+ could get the company to its goal of $50 billion in services revenue next year.

Because Hall believes that the free one-year trial of Apple TV+ will have a "material negative impact" on earnings, the analyst cut his 12-month target price on the stock to $165 from his previous $187 target. The brokerage firm has been looking for a decline in the shares, which closed Friday at $218.75 after declining nearly 2% following the dissemination of Goldman's research report.


But Apple has stepped in to dispute Hall's analysis. In a statement, Apple says "We do not expect the introduction of Apple TV+, including the accounting treatment for the service, to have a material impact on our financial results." Not only is it uncharacteristic for Apple to respond to a single brokerage report, but Goldman also happens to be Apple's partner on the recently launched Apple Card. In addition, the investment house also earned a nice hefty fee by advising Apple on its $1 billion purchase of Intel's smartphone modem chip business in July. And over the last decade, no securities firm has issued more publicly-traded debt for Apple, helping the company borrow $44 billion from the capital markets.

A so-called Chinese wall at investment firms is supposed to separate the research arm from the fee-generating investment banking unit. This wall keeps Wall Street firms from releasing too many bullish reports on a company in the hope that it will earn some underwriting business from said company. But in this case, the wall worked as it should; the Goldman analyst issued a bearish report on Apple that knocked down the value of the tech giant. Still, there would be nothing illegal if Apple decided to give its next underwriting assignment to say, Morgan Stanley or Bank of America's Merrill Lynch unit because of this disagreement.

For those who aren't purchasing a new iPhone, Apple TV+ will cost $4.99 a month (with access for up to six people) after a one-month free trial. The service starts on November 1st.

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27 Comments

1. apple-rulz

Posts: 2178; Member since: Dec 27, 2016

A year free is a brilliant move, it’s pretty much guaranteed to rope in (some) people and get them paying after the trial time is up. Given Apples propensity to make $$$, I’ll give them the benefit of the doubt over any analyst.

3. Subie

Posts: 2378; Member since: Aug 01, 2015

I think you're right. This is definitely a long term strategy for Apple. Even better, It could entice new customers into the fold.

17. sgodsell

Posts: 7423; Member since: Mar 16, 2013

Also Apple can then then boast and brag to everyone and say, we now have this many TV+ users when the next iPhone event comes around. Many will forget that the vast majority of Apple TV+ users will be free because of the Apple devices that they will purchase.

24. lyndon420

Posts: 6818; Member since: Jul 11, 2012

This is 2019...iphone/apple?? What is that?

26. Marcwand3l

Posts: 446; Member since: May 08, 2017

More like a desperate move.

2. capo745

Posts: 6; Member since: Mar 21, 2018

Is it just me or *Phone Arena has been posting non stop iPhone related "news" lately?

4. jellmoo

Posts: 2620; Member since: Oct 31, 2011

Yeah. It's almost like there was just a rather large event where Apple unveiled a whole slew of new products. Weird... Wonder what it could be...

6. Alcyone

Posts: 467; Member since: May 10, 2018

Lol. "New"? Just upgrades to put them on a level playing field. The real "new" is next year.

8. jellmoo

Posts: 2620; Member since: Oct 31, 2011

Whether you like what they unveiled is kind of beside the point. Apple just released several new products and services. Apple products and services are popular. Tech blogs cover popular trends. This is why Phone Arena has had a nonstop flow of Apple related articles this week.

5. Subie

Posts: 2378; Member since: Aug 01, 2015

Is it just me or do people seem to forget that this happens every time there is a major Apple product announcement. And that was Tuesday! The same happens when Samsung's Galaxy Note, and S series are released. Etc, etc...

20. Vancetastic

Posts: 1522; Member since: May 17, 2017

It's just Apple and Samsung...gets the fanboys all excited. Too bad some of the smaller companies can't get some of that free advertising.

23. Subie

Posts: 2378; Member since: Aug 01, 2015

When I go to the comment section for articles on devices from some of those companies(like Asus), sometimes there's nothing but crickets in there. So while I'd like to see more articles on devices like the ROG phone2, I can't blame phoneArena for writing for the mainstream audience...

25. Vancetastic

Posts: 1522; Member since: May 17, 2017

It's clicks, indeed.

10. gadgetpower

Posts: 273; Member since: Aug 23, 2019

Get it on. Apple just released their iphones and of course it will be always the talk of the town in both android and ios.

13. whatev

Posts: 2316; Member since: Oct 28, 2015

Hey, guess what? Did you know that you could just stop coming here and that suffering would stop for you? Wow! Sometimes I have brilliant ideas, it amazes me!

7. Alcyone

Posts: 467; Member since: May 10, 2018

Agreed. Does seem Apple gets more coverage than LG, Moto, Samsung or any other OEMs. Apples launch is biggest hyped one of all.

9. cmdacos

Posts: 4253; Member since: Nov 01, 2016

Companies pray on people that forget to unsubscribe to their services. Smart move from Apple because after a month of forgetting that the horrible content exists, people are bound to forget to cancel and simply fuel the services machine.

11. gadgetpower

Posts: 273; Member since: Aug 23, 2019

TV+ is very promising. I hope your Samsung can provide the same services that Apple offers.

14. whatev

Posts: 2316; Member since: Oct 28, 2015

Exactly, LMAO, you just hurt Ms. cmdacos feelings

16. TheOracle1

Posts: 2329; Member since: May 04, 2015

¢rapple isn't competing with Samsung here. They've got Amazon, Hulu, Netflix etc to contend with and content is King. The current ¢rapple TV doesn't allow vpn's either so viewers outside the US won't look kindly on that either. Will they succeed? Most likely. Will they attract people outside the ios jail? Not so sure. It's all about content and a few flops will damage them.

18. cmdacos

Posts: 4253; Member since: Nov 01, 2016

Apple cant compete with the big players. Makes no difference. It's not a smart game for other businesses to get into. This will be the Apple News+ of the tv world.

15. midan

Posts: 2972; Member since: Oct 09, 2017

Very smart move from Apple. Alone this year there’s going to be close to 100 million Apple TV+ users. Actually next year they might have more users than Netflix.

19. cmdacos

Posts: 4253; Member since: Nov 01, 2016

Paying nothing because they got their script for free.

27. Marcwand3l

Posts: 446; Member since: May 08, 2017

Yeah, users that don't pay anything. Maybe they can make the subscription permanently fee and in this way the will have the most subscribers.

21. Vancetastic

Posts: 1522; Member since: May 17, 2017

Apple just wants it's greedy little fingers in every pie out there. No thanks, not even for free.

28. mackan84

Posts: 546; Member since: Feb 13, 2014

Excuse me but name one company that doesn’t want their little fingers in every “pie out there”? Samsung for instance does fridges, boats and tanks! Google is the king of ads in pretty much anything we watch online.

22. cmdacos

Posts: 4253; Member since: Nov 01, 2016

They should let you pay by the hour. After 6 hours, you'd have watched the entire catalogue that is worth anything at all.

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