The product launch event in Cupertino, California made headlines on Tuesday. A whole lot of headlines. Faced with a slow-down in hardware sales, Apple (AAPL) announced what will be it's last pre-5G iPhone series release. The iPhone 11, smartly priced at $699 in order to keep the upgrade crowd in house, ending three consecutive years of price increases. Then there are the iPhone 11 Pro, and iPhone 11 Pro Max that come with high resolution OLED displays, elite level camera features, and a high-end processor. All editions of the 11 series will perform better regarding battery life. The smartphones may be what keeps the Apple ecosystem in a way semi-captive, but the phones were not the headline makers. The attention grabbers would be the Apple Watch series 5, as well as the streaming services.
Whom among us has not toyed with the idea of finally getting an Apple Watch for ourselves? You're talking to a kid who buys $10 watches off of the street, and has never paid more than $25 for any watch he has ever owned. That said, for the athletic, for those with an interest in benefiting from the Apple Watch's growing potential regarding health and wellness type applications, having a smart device on one's wrist does not seem like the worst idea.
The watch too will come with improved power delivery. Older versions of the watch will now be discounted, which is key. Apple management knows that the watch along with Airbuds are the devices where the growth is. For those a little slow to adapt, the now "antiquated" Series 3 will retail at $199, just in time for the holidays. Perfect for that person one knows not what to get, but does not want to look cheap.
In what was clearly a shot across the bow aimed at Netflix (NFLX) , and the Walt Disney Co. (DIS) , as well as others, Apple announced both an Arcade video-gaming streaming service and the Apple TV Plus streaming video service at the very affordable price of $4.99 monthly. Apple will offer the TV Plus to those who purchase a new iPhone, a new iPad, or a new Mac Book. How smart is that? In my opinion very smart. Tie services with infrastructure.
The streaming service will be light on content at the time of it's launch on November 1st. Offering the service free for a year may provoke a few upgrades. Making the service cheap in the first place makes it less likely that those already participating in the Apple services ecosystem will make choices regarding services kept and services cast out.
This is where it gets dicey for that entire business. With Apple TV Plus at $4.99 a month, with Disney Plus (expected to have a fairly deep library) priced at $6.99 a month, there is going to be obvious downward pressure on margin across the industry. Apple has the ecosystem. Disney has not only content, but can bundle Disney Plus with Hulu and ESPN Plus... probably for little more than the $12.99 per month that Netflix charges per month and still can not make money on, even with what was close to a monopoly. Both Apple, and Disney... and Amazon (AMZN) for that matter have diversified revenue streams, meaning that they will be able to sustain industry specific losses for longer. Not Netflix. This is their ballgame.
By the way, this downward pressure on pricing probably also has a lot to do with Elliott Management's beef with the leadership at AT&T (T) .
Apple is taking the necessary steps in order to set up future success ahead of the advent of 5G technology. The firm is undergoing a slowdown in China that could swing either way really. That's an unknown. The firm does seem to be willing to absorb the impact of tariffs upon the watch for now, given more advantageous pricing for memory chips across it's product lines. I think the big loser here is Netflix. I have multiple positions across the names mentioned in this piece. Please see disclaimer. My target price for Apple remains $240. My target price for Disney remains $170. My target price for Netflix is $250.