Apple Bleeds Profits on Streaming Barrons News Said

Barrons News.- Apple AAPL +1.04% will lose billions of dollars on its streaming TV services for years to come, making a material dent in the company’s earnings performance, Barclays says. But the Apple shows no signs of backing away from its push into streaming video.

Analyst Tim Long says that incremental spending on content effectively takes cash away from the $90 billion stock buyback plan that Apple announced last week. Shareholders would prefer the company buy back more stock or increase its dividend yield over aggressive content spending for TV+, he writes.

With Apple’s overall top line shrinking—and tech investors broadly embracing Meta Platforms (META) CEO Mark Zuckerberg’s “year of efficiency” approach to cutting costs amid weakening consumer demand—the iPhone maker could begin to see some investor pressure to improve the financial performance of TV+, and to slow spending on content.

Long, who has an equal weight rating on Apple shares, writes that TV+ continues to show impressive growth on both revenue and subscribers, but that it will be years before the service contributes to Apple’s bottom line.

Apple didn’t immediately respond to a request for comment on the note.

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Apple itself provides extremely little disclosure on the performance of TV+. Its revenue is rolled into the company’s Services segment, along with all of the company’s other service offerings. Apple reports no data on TV+ subscribers, revenue, or profitability. But Long has made some educated guesses regarding the performance of TV+, Barrons News reported.

The analyst estimates that Apple TV+ accounts for just 2% of Apple’s services revenue, and that the streaming service had revenue of $1.5 billion in calendar 2022, growing to $2.2 billion in 2023. (The company had $78 billion in services revenue in the fiscal year ended September 2022.)

Long also writes that TV+ likely has negative operating margins, generating an estimated loss of 30 cents per share for calendar year 2022. Losses will “plateau” in 2025, he predicts, based on content spending of $4.8 billion in 2022, $5.8 billion in 2023 and $6.6 billion next year.

However, strong growth could be ahead. Long projects that TV+ is growing revenue at about 30% a year on a compounded basis, well ahead of an industrywide growth rate in the low teens. For calendar 2023, he models 52% revenue growth, driven in part by a price increase installed in October 2022. (The company boosted the price to $6.99 a month from $4.99.)

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In terms of subscribers, he approximates that Apple had a paid subscriber base of about 29 million in 2022, and projects the total will reach 39 million by 2025. That would make Apple one of the smaller streaming services. For 2025, Long estimate 274 million subscribers for Netflix NFLX +0.99% (NLFX), 202 million for Walt Disney DIS –1.02% ‘s (DIS) Disney+, 184 million for Amazon AMZN +3.35% ‘s (AMZN) Prime Video, and 123 million for Warner Bros. Discovery WBD –2.76% , which includes Max, the new name for HBO Max).

According to Long, critics have generally well received Apple’s content. Additionally, TV+ offers a price well below the ad-free tiers of other services, with Netflix priced at $19.99 a month and HBO Max priced at $15.99, while TV+ is only $6.99 a month. Disney is in the middle, at $10.99 a month.

Apple has a smaller library of content, but most of it is fresh. Long notes that the service released over 55% of its content in the 2021-to-2023 period, while Netflix released more than half of its content between 2016 and 2020. TV+ also had more content rated 8 or 9 by IMDb, at 18%, compared with 9% at Netflix and 5.5% at Amazon Prime, he added to Barrons News.

Long says the company’s dabbling in sports content—an exclusive deal with Major League Soccer, and the broadcasting rights for Friday night Major League Baseball games—“could pave the way for a future advertising tier” for TV+, which could provide a considerable revenue boost for the service.