Technology

Is Apple's Conglomeration of Services Turning the Company Into General Eclectic?

Jon C. Ogg

Published: March 25, 2019 3:15 pm

Last Updated: January 30, 2020 10:54 pm

Investors in Apple Inc. (NASDAQ: AAPL) have seen a very defined transformation in the company over time. From growth of the Mac, iPhone, iPod, iPad and the Watch, 2019 is going to be the year that all of those predictions start coming true for Apple to greatly expand its services portfolio. This is a move that could easily add billions of dollars of revenues if it is successful, but it is also full of competition on every angle from established first-mover companies that users may not want to migrate away from.

This big new move is creating a risk that Apple’s services offerings are going to get lost as if they were under a conglomerate. If Apple is not successful, it could end up being dubbed General Eclectic.

Apple’s investors have the right to wonder if its full court press into many more services on top of existing services is going to just be too much for the company to handle. Apple and Tim Cook have felt the effects of “peak iPhone” for a while now, and the company has now migrated over to the replacement cycle of its business more than the underlying growth cycle.

Apple obviously deserves credit that it was the greatest growth engine we have seen from any other company in its ability to grow cash. It is also the absolute king of all-time stock buybacks now, but Apple’s calendar fourth quarter of 2018 brought on its first year-over-year fourth quarter revenue decline that investors have witnessed in modern times. It just seems fair to wonder at this point if Apple is unveiling too many services and digital services all at once.

24/7 Wall St. has evaluated each of the major announcements by category and offered outside views into what sort of subscribership and potential revenues might be expected. This is still only using partial data because not all of the numbers have been released. Still, there have at least been some outside numbers around the issue. We have also provided a 3:30 time update showing prices of the additional companies which may be competed against and/or included.

One service that was not as universally expected was the Apple Card, and is being partnered with The Goldman Sachs Group, Inc. (NYSE: GS) and Mastercard Inc. (NYSE: MA). This is what the company calls an innovative and new kind of credit card to help customers lead a healthier financial life. The Apple Card is built into the Apple Wallet on your iPhone and is said to offer customers a familiar experience with Apple Pay and the ability to manage their card right on iPhone with monitoring spending, with daily cash rewards of up to 3%, no fees and lower interest rates.

It is impossible to predict how many iPhone users will sign up for the Apple Card and who will then keep using and adopting it as the primary payment system. The website CreditCards.com has already announced that the new Apple Card falls short of other offerings and perks from other credit cards companies. Their take is that Apple 3% back on its own Apple purchases, 2% back on Apple Pay and 1% back on everything else falls short compared to other cash back cards on the market.

Updated at 3:30: MasterCard shares were last seen down just 9-cents on the day at $230.67, and Goldman Sachs shares were last seen down 52-cents at $188.44. Rival Visa was last seen trading up 12-cents at $153.19 after having been down earlier in the day.

Another service is the new Apple News+ for $9.99 per month. This is its new subscription service that brings together over 300 popular magazines, newspapers and digital publishers all to stay within the Apple News app. Cook & Co. are calling it as having the best and most relevant articles to meet any range of interests, with content coming from Vogue, National Geographic Magazine, People, ELLE, The Wall Street Journal and Los Angeles Times.

It is unknown how many people want to make one more media subscription purchase, but the News+ was panned recently because some publishers believe Apple’s approach is flawed.

Then there is Apple Arcade, with a currently unnamed price and a fall of 2019 launch date, which will feature new and original video games from independent developers and major studios alike. The subscription service will feature over 100 new and exclusive games and it is said to redefine games and be curated based on originality, quality, creativity, fun and appeal to players of all ages.

While this will be Apple’s entrance into a deeper game launch, it has to compete with games already on your phone, PC, consoles and other connected devices. Google and Microsoft are also launching their own cloud-based gaming offerings. We have yet to see analyst forecasts for how many people might become Arcade subscribers over the coming years and with expected refreshes coming in the next couple of years or so from Xbox and PlayStation.

And for the awaited streaming service, Apple is launching its TV channels service Apple TV+ with channels and original content that will be available on TVs, Apple products and also on devices such as Samsung, LG, Sony, Vizio, Roku and Amazon.

The pricing and availability of some of these streaming media services and channel packages an a-la-carte subscription prices is also slated for the fall of 2019 in Apple’s press release.

Update at 3:30: Comcast, the top cable system which also owns a stake in Hulu with Walt Disney, was last seen down 28-cents at $39.18. Shares of Walt Disney, the majority owner of Hulu, were last seen trading down 17-cents at $108.06 on Monday afternoon.

As for what all of this implies for Apple’s overall revenues, it may be a slower growth than during huge updates and product launches would come out late in the year. One simple formula for discovering a peak or targeted market is to determine how many people will really fall under each targeted service considering that some of these are going to be considered souped-up products on the Apple ecosystem which users have already been accessing for years.

Wedbush Securities’ Daniel Ives recently opined that Apple could reach 100 million subscribers for its streaming video service over the next 3 to 5 years, with a realistic goal that could translate into a $7 billion to $10 billion annual revenue stream over time and that it would likely further cement its installed base and halo effect. He gave a formula for how this could be worth $60 billion or more in value to Apple shareholders.

Updated at 3:30: Netflix shares had been down earlier in the day but the shares were last seen up about $5.00 at $366.01. Roku was last seen up $2.87 at $66.78 on the news, and Amazon was up $13.42 at $1,778.19.

It is obviously not possible to say that Apple is already failing here. There are no subscriber numbers to project as far as sign-ups and “keeps” and there are still some questions about costs and timing.

While Apple’s model is to compete in a larger foray of services here, it is also doing that in partnership or with compatibility of competing systems and services as well. It seems more than fair to wonder if this is a huge process for Apple that might not add in those endless billions of dollars in annual service revenues in the years ahead that some analysts and investors are hoping will come.

Apple shares were last seen trading down 1.7% at $187.85 on Monday afternoon, with a 52-week range of $142.00 to $233.47. Apple’s consensus analyst price target was last seen as $180.85 in the Refinitiv sell-side research universe.