Apple TV+: Think About It Differently

May 31, 2020 6:00 AM ETApple Inc. (AAPL)DIS, NFLX76 Comments18 Likes


  • According to a recent survey, Apple TV+ is the most fragile of the video streaming offerings currently available in the market.
  • But Apple TV+ is a rounding error at best for the Cupertino company. Its true value may lie in helping to support device sales.
  • Despite lack of traction out of the gate, I believe that cash-rich Apple stands to lose little from investing in its video platform.
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Apple’s (NASDAQ:AAPL) streaming video service has been hitting the news lately. And not for the best of reasons.

According to a Flixed survey, Apple TV+ seems to be the most fragile of the video streaming offerings currently available on the market. More than half of the survey respondents suggested that they plan on canceling their subscription to Apple TV+ soon or once the free trial expires. No other service offered by competitors has had this level of rejection by its users.

The discouraging results beg the question: why should Apple bother competing in the saturated video streaming space if it cannot stand out in the crowd?


The full package

To start the discussion, it may help to put the results of the survey in context. Unlike Netflix (NFLX) and even Disney (DIS), Apple’s financial performance currently depends very little on the results produced by its streaming video service.

Here’s some data around it: Apple TV+ had nearly 34 million users in January 2020, most of them enjoying the service for free (see pie chart below). Even if all current users were to become paying subscribers at $4.99 per month, which they certainly will not, the annual recurring revenue generated would reach only $2 billion.

This figure barely represents 5% of Apple’s total service segment, and less than 1% of the company’s fiscal 2019 sales. Considering how expensive it has become to create high-quality content, the streaming service could even be dilutive to Apple’s earnings – at least until it can reach massive scale. Therefore, from a financial results perspective, Apple TV+ can be considered a rounding error (at best) for the Cupertino company.

Source: DM Martins Research, using data from multiple sources

However, Apple TV+ currently serves a more strategic role within the company’s ecosystem. With the purchase of an Apple device, whether it be an iPhone or iPad or Mac, users receive a free year of Apple TV+. In the extreme case of a $199 iPod Touch, the benefit of the free service adds up to almost one-third the price of the device itself.

It is unclear how much free Apple TV+ may have helped to increase the sale of Apple products since the start of the promotion in September 2019. Keep in mind that products still accounted for over 80% of Apple’s total revenues last fiscal year. But here’s a simple back-of-the-envelope calculation that may help to illustrate the value of the company’s streaming video service:

  • Assume that the free Apple TV+ offering has been good enough a reason to convince a mere 1% of potential Apple customers to seal the deal on a new device purchase.
  • In this case, the extra revenue from products sold would exceed the annual service revenue potential from the current 34 million Apple TV+ users.
  • The indirect impact of Apple TV+ to the company’s bottom line would be 12 cents in earnings per share. This number would have been enough to turn the slight decline in Apple’s EPS in fiscal 2019 into modest income growth instead.

Don’t write off Apple TV+ yet

It is hard to make a strong case in favor of Apple TV+ as a standalone business today. The streaming service ranks low in total number of users and customer loyalty. Considering sky-high content costs, it is very unlikely that Apple TV+ will generate much profit for the Cupertino company, unless the service rises in popularity quickly and gains significant scale.

However, the true value of the video service may lie in its ability to tie together Apple’s ecosystem and to help boost product sales. While this value could be hard to measure in dollar and cents, I believe that cash-rich Apple stands to lose little from investing in its streaming platform, using it as a “hook” and a loss leader to help keep growth afloat on the product side.

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This article was written by

DM Martins Research profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several channels, including Apple Maven ( and Wall Street Memes (


Disclosure: I am/we are long AAPL. 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.

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