Is Apple TV a Viable Replacement?

Jun. 26, 2008 2:47 AM ETApple Inc. (AAPL)18 Comments
Andy Zaky profile picture
Andy Zaky

As of the end of last year, roughly 132 million DVD players have been sold in the United States since the device's debut in the late 1990s. Over 10 million of these players were sold in 2007 alone, notwithstanding the advent of the Blu-Ray and HD-DVD formats. At its height in 2003, DVD sales reached close to 22 million units annually (U.S.). If Apple (NASDAQ:AAPL) is able to dominate the video market with the Apple TV, as it conquered the digital music market with the iPod, Apple could potentially add an additional $2 to $4 billion a year in "surreptitious" revenue from sales in the United States alone.

Apple has been, and continues to be, quite secretive regarding the number of Apple TVs that are in circulation. Apple neither discloses a total unit sales figure for the device, nor does it announce the amount of revenue it receives from Apple TV sales. All we know is that Apple currently uses the subscription method of accounting for Apple TV revenue, much like it does with the iPhone.

But instead of allocating a separate line item for the Apple TV on its financial statement, Apple simply records the revenue under one line item called "iPhone and Apple TV"—leaving the relevant observer completely ignorant as to both the monetary and market impact of the device. This has led many Wall Street pundits, investors and financial analysts to fully understate the potential influence the Apple TV might have on the video market.

Investors should view this as a positive for more than one reason. First, by leaving the financial public in the dark, Apple has all but eliminated potential headline risk commonly associated with the inauguration of a new digital product. Both sell-side analysts, and the financial press, thrive in writing negative fluff pieces

This article was written by

Andy Zaky profile picture
Andy Zaky has been a stock investor for over 17-years now and has a Juris Doctorate from the UCLA School of Law-- a top 15 law school in the United Stated.  Andy's focus is in technology stocks.  He has closely analyzed Apple, Google and Amazon since 2005.  Andy currently runs a variety of model portfolios at Bullish Cross and plans to launch a U.S. Domestic conservative Long-Short highly-diversified equity fund that closely tracks the S&P 500.  The model for that fund has signfiicnatly outperformed the S&P 500 since the portfolio launched in 2015 despite being diversified in at least 450 stocks at all times, no derivatives and no single stock comprising of more than 5% of the portfolio's AUM at entry as of September 2017.

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