Malcolm Owen
Apple's launches of its streaming video service Apple TV+ and other additions to the company's Services business won't offer as much of a gain as investors think, according to HSBC, with the iPhone maker arriving "too late" to make a major impact in any of the industries it is entering with its new offerings.
Apple's March "It's Show Time" event saw the launch of a number of services, including the Apple News+ subscription, Apple TV changes featuring Apple TV+ content, Apple Arcade, and Apple Card. Despite the generally positive opinion on some of the launches by analysts, albeit with the sense of being underwhelmed, HSBC believes the revealed services won't make much of a dent in Apple's finances in the short term.
HSBC analysts downgraded Apple to a "reduce" rating with a price target of $180, causing shares to fall by 1 percent in premarket trading, reports CNBC. The firm believes the push into services will have lower margins than investors would prefer, and won't see any real benefit to Apple's bottom line for some time.
HSBC last downgraded Apple's shares in December 2018, shifting it from "buy" to "hold" and applying a target price reduction from $205 to $200.
"Recent announcements on services has Apple putting money where its mouth is but returns could take some time to extract," the investor note reads. "While the new offerings may garner consumer attention, we do not expect these services to move the needle significantly."
The relatively mature markets Apple is inserting itself into is a concern for HSBC. "We believe Apple has come too late to the game," the analysts continue, suggesting the services "by and large do not differ much or are below par to offerings from competition."
The success of the new services is also thought to be limited outside the United States, with a lower chance of success at acquiring and retaining customers in emerging markets and other countries.
HSBC also offers a warning to investors who may feel the current valuation of Apple is "reasonable" after its earlier financial issues caused in part by lower than anticipated iPhone sales in China.
"We believe that following a 41-percent rise from January 2019 lows and relative optimism and complacency on the services announcement as well as side-sell ratings, there is now some downside," the investor note asserts.
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Charles Martin
William Gallagher
Christine McKee
Wesley Hilliard
83 Comments
Are we sure the cost structure of these services is really that big of a deal such that margins will really be as low as they think? Explain to me where Apple has spent the money? $1B for TV shows is a drop in the bucket, the card R&D is not significant, the Apple Arcade R&D is also baked into ongoing work on OSes. Texture wasn't an expensive acquisition. I'm open to thinking revenues won't be as big as some might project, but the marginal cost of these above-the-fold offerings is a rounding error still...
I love how these people drop their guidance and spew some nonsense about how Apple is "doomed" or "Android did it first and better" and that Apple is "too late to the game".
And then two years later moan and complain about how Apple Card is the hottest thing on the market and Apple was visionary and got it right.
Apple is still a disrupter. The credit card, insurance industries are possibly the last of the sectors that, thus far, have skated by without any real innovation. And they’re soiling themselves.
So, let me understand this, APPL didn't choose HSBC to back their Apple Card. HSBC is underwhelmed by the prospect of high profit customers getting the non-HSBC card? Nothing here folks, move along. . . .
-RJ
Did HSBC even bother to study these new services? The apple card is something no other card can even come close to offer. The TV service is also much more comprehensive than other services. If it was too late, I wonder why Samsung, LG and other makers have made Apple TV a native app on their smart TV. Lastly their Apple Music was launched way after Spotify but has already surpassed paid users in USA. I think HSBC should worry more about their own performance which has dwindled along these years rather than making comments on subjects they are not even familiar with or made thorough study.