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Bullish 2020 predicted for Apple with Services growth accelerating

Apple is set to have a bullish 2020, Morgan Stanley claims the day after the launch of the 2019 iPhone models, with the aggressive pricing of Apple Arcade and Apple TV+ forming part of Apple's strategy to accelerate its Services revenue growth into next year.

Citing low expectations for the Apple Special Event, Morgan Stanley insists there are three reasons the announcements were compelling, according to an investor note seen by AppleInsider. The first was the pricing of Apple TV+ at $4.99 instead of an expected $9.99, along with the 12-months free bonus for hardware purchases, which "creates a competitive advantage in an increasingly crowded streaming video market."

The pricing was the second main point, where Apple elected to avoid raising prices relative to previous models, as well as lowering the starting prices for the iPhone 11 and Apple Watch Series 3 to make them more attractive to first-time buyers. Apple's trade-in program is also promoted with prices "roughly 40% lower if consumers trade in a two-year old or newer device," further enticing a purchase.

The third point is that, while there were expected camera improvements and changes in battery technology, the level of the improvements were "very significant." For example, the four to five-hour extra battery life for the iPhone 11 Pro and Max is far higher than the usual one-hour improvements seen in the last two product cycles.

Both camera quality and battery life are said to be two of the top three features consumers consider when upgrading their smartphone, according to recent survey results cited by Morgan Stanley.

"Combining the aged installed base with new camera and battery technology this year and the upcoming 5G iPhone expected to launch in 2020 suggests there is now more upside than downside risk to this business," the firm claims, observing a combination of "revenue growth re-acceleration and multiple expansion driving shares."

Morgan Stanley isn't changing its full year 2020 and average selling price forecasts for the moment, at -2% year-on-year for both, but the increase in services helps the firm "see the most upside to units given elongated replacement cycles."

Revenue growth for Services will continue accelerating as new services like Apple Card and Apple TV+ grow in usage.

As for other products in the event, Morgan Stanley says the Apple Watch Series 5 and new iPad are "less about revolutionary hardware upgrades and more about subtle feature enhancements," that will be further improved with the launch of iPadOS and watchOS 6.

The Apple Watch's pricing is consistent with the Series 4, but the lowering of the Series 3 is highlighted to bring it in line with the pricing of lower-end smartwatches. Meanwhile, the new iPad is praised for offering three times the pixels and double the processor speed of the top-selling notebook on the market today.

Morgan Stanley reiterates its "Overweight" rating for Apple's shares, and a price target of $247.

Other analysts have, as expected, offered their own insight into Apple following the special event, with opinions largely focusing on Services-related business than hardware.