Apple: iTunes Radio Is Designed To Be The Largest Streaming Radio Provider

Jul.13.13 | About: Apple Inc. (AAPL)

Bulls and bears alike agree that Apple (NASDAQ:AAPL) stock has had some major problems over the past 12 months. One of the biggest obstacles that the company is facing is a slowdown in revenue. Sales growth of 0.4% does not sit well with big investors. And that number does not leave much of a cushion. There is a real possibility that the revenue for Q3 could be down compared to last year when the earnings are reported on Tuesday, July 23. The low estimate of $32.84 billion would be down over $2 billion from 2012:

Revenue Est Current Qtr.
Jun 13
Next Qtr.
Sep 13
Current Year
Sep 13
Next Year
Sep 14
Avg. Estimate 35.18B 37.85B 171.12B 186.58B
No. of Analysts 45 44 53 52
Low Estimate 32.84B 34.00B 166.67B 166.70B
High Estimate 38.35B 43.88B 178.52B 218.73B
Year Ago Sales 35.02B 35.97B 156.51B 171.12B
Sales Growth (year/est) 0.40% 5.20% 9.30% 9.00%
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The only thing that will get that revenue up again is to come out with the sexy new products that Apple has been famous for. Last month when the company confirmed the rumors that it would be unveiling its new iTunes Radio later this year, analysts and investors were not sure what impact it would have on Apple stock and on competitors such as Google (NASDAQ:GOOG), Sirius XM Radio (NASDAQ:SIRI) and Pandora (NYSE:P). Many analysts are taking a "wait and see" position until the new radio service is unveiled. But they are eager to hear any news that might tip the scales in favor of one radio provider versus the other.

BTIG Media Analyst Rich Greenfield has produced an Apple iTunes Radio iOS 7 Beta 3 Video Demonstration via YouTube, which gives investors a glimpse of how Apple radio will look and operate. According to the Apple website, listeners can find brand new songs each week that are exclusive to Apple. This is sure to appeal to the "gotta have it first" crowd. As a side note, this is the same crowd that bought the first iPhones. And many of them are still loyal to a fault:

As the world's most popular music store, iTunes has access to thousands of new songs every week. And you'll hear some of that music on iTunes Radio before you hear it anywhere else. Whether it's an exclusive track from an up-and-coming band or a pre-release of the next big hit....

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Even though I have been skeptical about the possible success of iTunes Radio in the past, the fact that Apple will offer exclusive songs will give it an edge over all of the competition. There is not any doubt that a free radio service of this caliber will be an instant success, which will translate into more sales, because listeners will have to (and want to) purchase new iOS 7 devices to access the exclusive music.

But will it be soon enough? Will investors see the possibilities in this new service now, or will they wait for the revenue results next Spring after Apple radio is released in the Fall. The company still has a lot of catching up to do:

Chart forApple Inc.

Since many investors will wait to see what the new Apple products are, the contrarian play would be to gamble on a soft earnings report, and buy the stock as earnings are announced. Again, like every investment this is a gamble. Apple is still on very shaky ground.

Even though the Apple short interest will take only two days to cover, it has doubled in the last year. And on Friday it was the second "most viewed short interest" stock according to NASDAQ. So the share price is higher right now as those shorts scramble to cover their positions. Because in spite of the fact that the short positions are only 3% of the float, they constitute almost $12 billion at the current share price of $426.51:

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
6/28/2013 27,731,412 13,640,602 2.033005
6/14/2013 23,382,965 12,472,904 1.874701
5/31/2013 24,068,388 15,120,924 1.591727
5/15/2013 25,968,885 16,765,684 1.548931
4/30/2013 41,589,490 23,982,694 1.734146
4/15/2013 20,074,811 13,318,714 1.507263
3/28/2013 20,006,081 15,676,372 1.276193
3/15/2013 20,497,889 18,248,899 1.123240
2/28/2013 19,432,642 16,174,820 1.201413
2/15/2013 18,778,593 19,820,170 1.000000
1/31/2013 18,856,860 25,889,477 1.000000
1/15/2013 17,704,192 20,161,862 1.000000
12/31/2012 17,863,211 18,199,974 1.000000
12/14/2012 19,133,668 26,525,582 1.000000
11/30/2012 20,617,030 21,277,855 1.000000
11/15/2012 21,643,154 22,743,774 1.000000
10/31/2012 16,875,726 22,997,136 1.000000
10/15/2012 16,114,783 20,366,226 1.000000
9/28/2012 15,123,230 18,190,057 1.000000
9/14/2012 14,515,549 17,998,881 1.000000
8/31/2012 13,591,386 15,913,184 1.000000
8/15/2012 13,282,922 10,867,414 1.222271
7/31/2012 11,466,323 16,442,443 1.000000
7/13/2012 12,746,106 15,143,904 1.000000
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Keep in mind that there are risks involved with streaming radio services like Apple, Google and Pandora. The cost, availability, and reliability of data can be a problem compared with satellite radio. Although some may argue that satellite is becoming obsolete, it beats internet radio in some circumstances.

As I have mentioned in several articles, data and internet reception can be hard to find in rural areas. On a recent trip in Texas, I hit a stretch of Interstate which had no internet or cell phone reception. But Sirius XM satellite kept playing without skipping a beat. And there is the high cost of data downloads and streaming for IP. Here is an AT&T data coverage map:

Conclusion

iTunes Radio looks like it will be a much needed shot in the arm for Apple stock, even though it may not take off before the end of the year. But I think it will ultimately boost the share price at the expense of Google and Pandora Radio. Google does not rely on its radio service for revenue like Pandora does, and so its stock should not be affected by iTunes Radio. But Pandora is going to be facing some serious competition. And that company may not survive. I look for Sirius to continue on its own upward path as car sales increase, oblivious to anything that Apple does until someone develops WiFi that has more coverage than satellite.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.